Medicare Program; Changes to the Hospital Outpatient Prospective Payment System and Calendar Year 2002 Payment Rates

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 413, 419, and 489

[CMS-1159-P]

RIN 0938-AK54

Medicare Program; Changes to the Hospital Outpatient Prospective Payment System and Calendar Year 2002 Payment Rates

AGENCY:

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

ACTION:

Proposed rule.

SUMMARY:

This proposed rule would revise the Medicare hospital outpatient prospective payment system to implement applicable statutory requirements, including relevant provisions of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 and changes arising from our continuing experience with this system. In addition, it would describe proposed changes to the amounts and factors used to determine the payment rates for Medicare hospital outpatient services paid under the prospective payment system. These changes would be applicable to services furnished on or after January 1, 2002.

DATES:

We will consider comments if we receive them at the appropriate address, as provided below, no later than 5 p.m. on October 3, 2001.

ADDRESSES:

In commenting, please refer to file code CMS-1159-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission. Mail written comments (one original and three copies) to the following address only: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1159-P, P.O. Box 8017, Baltimore, MD 21244-8017.

To ensure that mailed comments are received in time for us to consider them, please allow for possible delays in delivery.

If you prefer, you may deliver (by hand or courier) your written comments (one original and three copies) to one of the following addresses:

Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201, or

Room C5-16-03, 7500 Security Boulevard, Baltimore, MD 21244-1850.

Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received too late for us to consider them.

For information on viewing public comments, see the beginning of the

SUPPLEMENTARY INFORMATION

section.

When ordering copies of the

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containing this document, see the

SUPPLEMENTARY INFORMATION

section.

FOR FURTHER INFORMATION CONTACT:

George Morey (410) 786-4653, for provider-based issues; and Nancy Edwards (410) 786-0378, for all other issues.

SUPPLEMENTARY INFORMATION:

Inspection of Public Comments

Comments received timely will be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Blvd., Baltimore, MD 21244-1850 on Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, please call (410) 786-7195 or (410) 786-4668.

Availability of Copies and Electronic Access

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online database through GPO Access, a service of the U.S. Government Printing Office. The Website address is:

http://www.access.gpo.gov/nara/index.html

. To assist readers in referencing sections contained in this document, we are providing the following table of contents.

Outline of Contents

I. Background

A. Authority

B. Summary of Rulemaking

C. Summary of Relevant Provisions of the Benefits Improvement and Protection Act of 2000 (BIPA 2000)

1. Accelerated Reduction of Beneficiary Copayment

2. Revision of Payment Update

3. Process and Standards for Determining Eligibility of Devices for Transitional Pass-Through Payments

4. Application of Transitional Corridor Payments to Certain Hospitals That Did Not Submit A 1996 Cost Report

5. Treatment of Children's Hospitals

6. Transitional Pass-Through Payment for Temperature Monitored Cryoablation

7. Contrast Enhanced Diagnostic Procedures

8. Other Changes

II. Proposed Changes to the Ambulatory Payment Classification (APC) Groups and Relative Weights

A. Recommendations of the Advisory Panel on APC Groups

1. Establishment of the Advisory Panel

2. Specific Recommendations of the Advisory Panel and Our Responses

B. Additional APC Changes Resulting from BIPA Provisions

1. Coverage of Glaucoma Screening

2. APCs for Contrast Enhanced Diagnostic Procedures

C. Other Changes Affecting the APCs

1. Changes in Revenue Code Packaging

2. Special Revenue Code Packaging for Specific Types of Procedures

3. Limit on Variation of Costs of Services Classified Within a Group

4. Observation Services

5. List of Procedures That Will Be Paid Only As Inpatient Procedures

6. Additional New Technology APC Groups

D. Recalibration of APC Weights for CY 2002

III. Wage Index Changes

IV. Copayment Changes

A. BIPA 2000 Coinsurance Limit

B. Impact of BIPA 2000 Payment Rate Increase on Coinsurance

C. Coinsurance and Copayment Changes Resulting from Change in an APC Group

V. Outlier Policy Changes

VI. Other Policy Decisions and Proposed Changes

A. Change in Services Covered Within the Scope of the OPPS

B. Categories of Hospitals Subject To and Excluded from the OPPS

C. Conforming Changes: Additional Payments on a Reasonable Cost Basis

D. Hospital Coding for Evaluation and Management Services

E. Annual Drug Pricing Update

F. Definition of Single-Use Devices

G. Criteria for New Technology APCs

1. Background

2. Proposed Modifications to the Criteria and Process for Assigning Services to New Technology APCs a. Services Paid Under New Technology APCs b. Criteria for Assignment to New Technology APC c. Revision of Application for New Technology Status d. Length of Time in a New Technology APC

VII. Transitional Pass-Through Payment Issues

A. Background

B. Discussion of Pro-Rata Reduction

1. Data and Methodology

2. Drugs and Biologicals

3. Radiopharmaceutical Drugs and Biological Products

4. Medical Devices

5. Projecting to 2002

C. Reducing Transitional Pass-Through Payments to Offset Costs Packaged into APC Groups

1. Background

2. Proposed Reduction for 2002

VIII. Conversion Factor Update for CY 2002

IX. Summary of and Responses to MedPAC Recommendations

X. Provider-Based Issues

A. Background and April 7, 2000 Regulations

B. Provider-Based Issues/Frequently Asked Questions

C. Benefits Improvement and Protection Act of 2000

1. Two-Year “Grandfathering'

2. Geographic Location Criteria

3.Criteria for Temporary Treatment as Provider—Based

D. Proposed Changes to Provider-Based Regulations

1. Clarification of Requirements for Adequate Cost Data and Cost Finding

2. Scope and Definitions

3. BIPA Provisions on Grandfathering and Temporary Treatment as Provider-Based

4. Reporting

5. Geographic Location Criteria

6. Notice to Beneficiaries of Coinsurance Liability

7. Clarification of Protocols for Off-Campus Departments

8. Other Changes

XI. Summary of Proposed Changes

A. Changes Required by BIPA

B. Additional Changes

C. Technical Corrections

XII. Collection of Information Requirements

XIII. Response to Public Comments

XIV. Regulatory Impact Analysis

Regulations Text

Addenda

Addendum A—List of Ambulatory Payment Classifications (APCs) with Status Indicators, Relative Weights, Payment Rates, and Copayment Amounts

Addendum B—Payment Status by HCPCS Code, and Related Information

Addendum C—Hospital Outpatient Payment for Procedures by APC: Displayed on Website Only

Addendum D—Payment Status Indicators for the Hospital Outpatient Prospective Payment System

Addendum E—CPT Codes Which Would Be Paid Only As Inpatient Procedures

Addendum G—Service Mix Indices by Hospital: Displayed on Website only

Addendum H—Wage Index for Urban Areas

Addendum I—Wage Index for Rural Areas

Addendum J—Wage Index for Hospitals That Are Reclassified

Alphabetical List of Acronyms Appearing in the Proposed Rule

APC Ambulatory payment classification

APG Ambulatory patient group

ASC Ambulatory surgical center

AWP Average wholesale price

BBA 1997 Balanced Budget Act of 1997

BIPA 2000 Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000

BBRA 1999 Balanced Budget Refinement Act of 1999

CAH Critical access hospital

CAT Computerized axial tomography

CCI Correct Coding Initiative

CCR Cost center specific cost-to-charge ratio

CMHC Community mental health center

CMS Centers for Medicare & Medicaid Services (Formerly known as the Health Care Financing Administration)

CORF Comprehensive outpatient rehabilitation facility

CPI Consumer Price Index

CPT (Physician's) Current Procedural Terminology, Fourth Edition, 2001, copyrighted by the American Medical Association

DME Durable medical equipment

DMEPOS DME, prosthetics (which include prosthetic devices and implants) orthotics, and supplies

DRG Diagnosis-related group

EMTALA Emergency Medical Treatment and Active Labor Act

FDA Food and Drug Administration

FQHC Federally qualified health center

HCPCS Healthcare Common Procedure Coding System

HHA Home health agency

ICD-9-CM International Classification of Diseases, Ninth Edition, Clinical Modification

IME Indirect medical education

JCAHO Joint Commission on Accreditation of Healthcare Organizations

MRI Magnetic resonance imaging

MSA Metropolitan statistical area

NECMA New England County Metropolitan Area

OPPS Hospital outpatient prospective payment system

PPS Prospective payment system

RFA Regulatory Flexibility Act

RHC Rural health clinic

RRC Rural referral center

SCH Sole community hospital

SNF Skilled nursing facility

I. Background

A. Authority

When the Medicare statute was originally enacted, Medicare payment for hospital outpatient services was based on hospital-specific costs. In an effort to ensure that Medicare and its beneficiaries pay appropriately for services and to encourage more efficient delivery of care, the Congress mandated replacement of the cost-based payment methodology with a prospective payment system (PPS). The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33), enacted on August 5, 1997, added section 1833(t) to the Social Security Act (the Act) authorizing implementation of a PPS for hospital outpatient services. The Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113), enacted on November 29, 1999, made major changes that affected the hospital outpatient PPS (OPPS). The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554), enacted on December 21, 2000, made further changes in the OPPS. The BIPA provisions that affect the OPPS are summarized below, in section I.C. The OPPS was first implemented for services furnished on or after August 1, 2000.

B. Summary of Rulemaking

• On September 8, 1998, we published a proposed rule (63 FR 47552) to establish in regulations a PPS for hospital outpatient services, to eliminate the formula-driven overpayment for certain hospital outpatient services, and to extend reductions in payment for costs of hospital outpatient services. On June 30, 1999, we published a correction notice (64 FR 35258) to correct a number of technical and typographic errors in the September 1998 proposed rule including the proposed amounts and factors used to determine the payment rates.

• On April 7, 2000, we published a final rule with comment period (65 FR 18438) that addressed the provisions of the PPS for hospital outpatient services scheduled to be effective for services furnished on or after July 1, 2000. Under this system, Medicare payment for hospital outpatient services included in the PPS is made at a predetermined, specific rate. These outpatient services are classified according to a list of ambulatory payment classifications (APCs). The April 7 final rule with comment period also established requirements for provider departments and provider-based entities and prohibited Medicare payment for non-physician services furnished to a hospital outpatient by a provider or supplier other than a hospital unless the services are furnished under arrangement. In addition, this rule extended reductions in payment for costs of hospital outpatient services as required by the BBA of 1997 and

amended by the BBRA of 1999. Medicare regulations governing the hospital OPPS are set forth at 42 CFR 419.

• On June 30, 2000, we published a notice (65 FR 40535) announcing a delay in implementation of the OPPS from July 1, 2000 to August 1, 2000.

• On August 3, 2000, we published an interim final rule with comment period (65 FR 47670) that modified criteria that we use to determine which medical devices are eligible for transitional pass-through payments. The August 3, 2000 rule also corrected and clarified certain provider-based provisions included in the April 7, 2000 rule.

• On November 13, 2000, we published an interim final rule with comment period (65 FR 67798). This rule provided for the annual update to the amounts and factors for OPPS payment rates effective for services furnished on or after January 1, 2001. We also responded to public comments on those portions of the April 7, 2000 final rule that implemented related provisions of the BBRA and public comments on the August 3, 2000 rule.

C. Summary of Relevant Provisions of the BIPA

The BIPA, which was enacted on December 21, 2000, made the following changes to the Act relating to OPPS.

1. Accelerated Reduction of Beneficiary Copayment

Section 111 amended section 1833(t)(8)(C) of the Act to limit the national copayment rate for OPPS services to 57 percent of the OPPS payment rate for services furnished in 2001 on or after April 1, 2001; 55 percent for services in 2002 and 2003; 50 percent for services furnished in 2004; 45 percent for services furnished in 2005; and 40 percent for services furnished in 2006 and thereafter.

Section 111 also specifies that nothing in BIPA 2000 or the Act, shall be viewed as preventing a hospital from waiving the amount of any beneficiary coinsurance for outpatient hospital services that may have been increased as a result of implementation of the OPPS.

2. Revision of Payment Update

Section 401 amended section 1833(t)(3)(C) of the Act to provide in 2001 an update equal to the full rate of increase in the market basket index. The 2002 update factor remains as it was under the law before the enactment of BIPA, that is, the market basket index percentage increase minus 1 percentage point.

3. Process and Standards for Determining Eligibility of Devices for Transitional Pass-Through Payments

Section 402 amended section 1833(t)(6) of the Act to require that the determination of eligibility for transitional pass-through payments be based on categories of devices (previously, eligibility was determined on a device-specific basis). The establishment of an initial set of categories was required effective for services furnished on or after April 1, 2001. This provision was implemented on March 22, 2001 in Program Memorandum (PM) No. A-01-41, which set forth a list of 96 initial categories.

Section 402 of the BIPA also provides that the Secretary must establish criteria to use in creating additional device categories. These criteria will be set forth in an interim final rule with comment period that will be published in the

Federal Register

at a later date.

Related to this issue is the issue of pro rata reductions of transitional pass through payments for new technology. A discussion of this can be found later in this document in Section VII. B.

4. Application of Transitional Corridor Payments to Certain Hospitals That Did Not Submit a 1996 Cost Report

Section 403 amended section 1833(t)(7)(F)(ii)(I) of the Act to allow transitional corridor payments to hospitals subject to the OPPS that did not have a 1996 cost report by authorizing the use of the first available cost reporting period ending after 1996 and before 2001.

5. Treatment of Children's Hospitals

Section 405 amended section 1833(t) of the Act to give children's hospitals the same permanent hold harmless protection as cancer hospitals under the OPPS.

6. Transitional Pass-Through Payment for Temperature Monitored Cryoablation

Section 406 amended section 1833(t)(6)(A)(ii) of the Act to include devices of temperature monitored cryoablation as eligible for transitional pass-through payments. This provision will be included in the interim final rule concerning changes in eligibility of devices for transitional pass-through payments mentioned above.

7. Contrast Enhanced Diagnostic Procedures

Section 430 amended section 1833(t)(2) of the Act to require that procedures that use contrast agents be classified in groups that are separate from those to which procedures not using contrast agents are assigned. We implemented this provision in PM No. A-01-73, issued on June 1, 2001. In addition, section 430 amended section 1861(t)(1) of the Act to expand the definition of drugs to include contrast agents effective for contrast agents furnished on or after July 1, 2001.

8. Other Changes

In addition to the provisions directly related to OPPS, BIPA included the following provisions that will require revision in the services assigned to APCs in the OPPS:

• Section 102 amended section 1861(s)(2) of the Act to allow coverage of glaucoma screening for certain high risk individuals effective for services furnished on or after January 1, 2002.

• Section 104(d)(2) directed the Secretary to determine if HCPCS codes are appropriate to describe mammography that uses new technology. The Secretary has created these codes for 2002.

Throughout this proposed rule, we discuss these various provisions and the changes we are proposing to make in the OPPS for them.

II. Proposed Changes to the APC Groups and Relative Weights

Under the OPPS, we pay for hospital outpatient services on a rate per service basis that varies according to the APC group to which the service is assigned. Each APC weight represents the median hospital cost of the services included in that APC relative to the median hospital cost of the services included in APC 0601, Mid-Level Clinic Visits. As described in the April 7, 2000 final rule (65 FR 18484), the APC weights are scaled to APC 0601 because a mid-level clinic visit is one of the most frequently performed services in the outpatient setting.

Section 1833(t)(9)(A) of the Act requires the Secretary to review the components of the OPPS not less often than annually and to revise the groups and related payment adjustment factors to take into account changes in medical practice, changes in technology, and the addition of the new services, new cost data, and other relevant information. Section 1833(t)(9)(A) of the Act requires the Secretary, beginning in 2001, to consult with an outside panel of experts when annually reviewing and updating the APC groups and the relative weights.

Finally, section 1833(t)(2) of the Act provides that, subject to certain exceptions, the items and services within an APC group cannot be considered comparable with respect to

the use of resources if the highest median or mean cost item or service in the group is more than 2 times greater than the lowest median or mean cost 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.”

The APC groups that we are proposing in this rule as the basis for payment in 2002 under the OPPS have been analyzed within this statutory framework.

A. Recommendations of the Advisory Panel on APC Groups

1. Establishment of the Advisory Panel

Section 1833(t)(9)(A) of the Act, which requires that we consult with an outside panel of experts when annually reviewing and updating the APC groups and the relative weights, specifies that the panel will act in an advisory capacity. The expert panel, which is to be composed of representatives of providers, is to review and advise us about the clinical integrity of the APC groups and their weights. The panel is not restricted to using our data and may use data collected or developed by organizations outside the Department in conducting its review.

On November 21, 2000, the Secretary signed the charter establishing an “Advisory Panel on APC Groups” (the Panel). The Panel is technical in nature and is governed by the provisions of the Federal Advisory Committee Act (FACA) as amended (Public Law 92-463). To establish the Panel, we solicited members in a notice published in the

Federal Register

on December 5, 2000 (65 FR 75943). We received applications from more than 115 individuals nominating either themselves or a colleague. After carefully reviewing the applications, CMS chose 15 highly qualified individuals to serve on the panel. The Panel was convened for the first time on February 27, February 28, and March 1, 2001. We published a notice in the

Federal Register

on February 12, 2001 (66 FR 9857) to announce the location and time of the Panel meeting, a list of agenda items, and that the meeting was open to the public. We also provided additional information through a press release and our website.

2. Specific Recommendations of the Advisory Panel and Our Responses

In this section of the proposed rule, we summarize the issues considered by the Panel, the Panel's APC recommendations, and our subsequent action with regard to the Panel's recommendations. The data used by the Panel in making its recommendation are the 1996 claims that were used to set the APC weights and payment rates for CY 2000 and 2001.

As discussed below, the Panel sometimes declined to recommend a change in an APC even though the APC violated the 2 times rule. In section II.C.3 of this preamble, we discuss our proposals regarding the 2 times rule based on the data we are using to recalibrate the 2002 APC relative weights (that is, claims for services furnished on or after July 1, 1999 and before July 1, 2000). That section also details the criteria we use in deciding to make an exception to the 2 times rule. We asked the Panel to review many of the exceptions we implemented in 2000 and 2001. The exceptions are referred to as “violations of the 2 times” rule in the following discussion.

APC 0016: Level V Debridement & Destruction

APC 0017: Level VI Debridement & Destruction

We asked the Panel to review the current placement of CPT code 56501, Destruction of lesion(s), vulva; simple, any method, in APC 0016 because the APC violates the 2 times rule. Because the procedure is a simple destruction of skin and superficial subcutaneous tissues, we would not expect it to have a median cost of $500. Thus, we believe that the higher costs associated with this code were the result of incorrect coding. To ensure that procedures in APC 0016 comply with the 2 times rule, we asked the Panel to consider one of the following clinical options:

• Move CPT code 56501 to APC 0017.

• Retain CPT code 56501 in APC 0016 but split APC 0016 into three APCs to distinguish simple destruction lesions from extensive destruction lesions.

The Panel rejected the option to split APC 0016 into three different APCs. The members stated that there was no validity in taking that approach because simple versus extensive destruction of lesions had greater significance in relation to physician work than in measuring facility resource use. They believed that many of the procedures assigned to APC 0016 are performed in a procedure room rather than in the operating room. The Panel considered factors such as the use of anesthesia and the method used to destroy the lesions as indicators of differences in facility resource consumption between simple and extensive destruction of lesions. The Panel agreed that the simple destruction of lesions should be assigned to the same APC as the extensive destruction of lesions if a laser is used to remove simple lesions. In this case, the Panel stated that the similarity in resource use is based on the method or technique used to perform the procedure.

The Panel also noted that CPT code 11042, Debridement; skin, subcutaneous tissue, and muscle, is the most frequently performed procedure in APC 0016, accounting for approximately 85 percent of this APC's total volume. The Panel noted that this code had probably been billed incorrectly because of widespread misunderstanding about its definition.

The Panel also reviewed procedures assigned to APCs 0014 (Level III Debridement & Destruction) and 0015 (Level IV Debridement & Destruction) and compared similarities and differences among those procedures and the ones assigned to APCs 0016 and 0017. During this comparative review, the Panel compared CPT code 56501 to the following two CPT codes: 46917, Destruction of lesion(s), anus, simple; laser surgery, which is assigned to APC 0014, and 54055, Destruction of lesion(s), penis, simple; electrodesiccation, which is assigned to APC 0016. In reviewing these three procedures, the Panel questioned whether the resources involved supported their current APC assignments. After considerable discussion, the Panel recommended the following:

• Move CPT code 56501 from APC 0016 to APC 0017.

• Move CPT code 46917 from APC 0014 to APC 0017.

The Panel recommended these changes to achieve clinical coherence and resource similarity among the procedures assigned to these APCs. Because CPT code 46917 is performed using laser equipment and requires anesthesia, the Panel believed it appropriate to move this procedure to APC 0017. Although the Panel considered the reassignment of CPT code 54055 to APC 0017, it did not recommend this change. The Panel's recommended changes would group in APC 0017 simple destruction of lesion procedures that use laser or surgical techniques with extensive destruction of lesion procedures.

We propose to accept the Panel's recommendation regarding CPT code 56501 and to revise the APC accordingly. However, as shown below in Table 3, we are proposing to make

additional changes to these APCs because of the 2 times rule.

APC 0024: Level I Skin Repair

APC 0025: Level II Skin Repair

APC 0026: Level III Skin Repair

APC 0027: Level IV Skin Repair

The composition of procedures in APCs 0025 and 0027 results in these APCs violating the 2 times rule. Therefore, we requested the Panel's advice in exploring other clinical options for reconfiguring the four skin repair APCs to achieve clinical and resource homogeneity among the procedures assigned to APCs 0025 and 0027 while retaining clinical and resource homogeneity for APCs 0024 and 0026. We asked the Panel to consider the following clinical options to achieve this result:

• Rearrange the procedures assigned to APCs 0024 through 0027 based on the size or the length of the skin incision.

• Rearrange the procedures assigned to APCs 0024 through 0027 based on the complexity of the repair, such as distinguishing repairs that involve layers of skin, flaps, or grafts from those that do not.

The Panel reviewed the various options presented, which were modeled based on the 1996 claims data used in constructing the current APC groups and payment rates. Using these data, the Panel discussed size and complexity of the various repairs, considered the clinical differences in performing the repairs on different anatomical sites, and the clinical differences involved in making skin repairs using flaps and grafts versus layers of skin. As a result of its review, the Panel stated that they found no compelling clinical advantages in the options presented. The Panel also agreed that more current data would be needed to make appropriate recommendations about the actual merits and benefits of the various options. For these reasons, the Panel recommended the following:

• Make no changes to APCs 0024 and 0027.

• Reevaluate these APCs with new data when the Panel meets in 2002.

• The Panel, in preparation for the 2002 meeting, will discuss with and gather clinical and utilization information from their respective hospitals regarding these procedures.

We propose to accept the Panel's recommendations. However, as shown in Table 3, we are proposing to make changes to these APCs based on the use of new data and application of the 2 times rule.

APC 0058: Level I Strapping and Casting Application

APC 0059: Level II Strapping and Casting Application

APC 0058 (which consists of the simpler casting, splinting, and strapping procedures) violates the 2 times rule. The median costs for high volume procedures in APC 0058 vary widely, ranging from $27 to $83. The median costs associated with presumably more resource-intensive procedures in APC 0059 are fairly uniform, ranging from $69 to $119. To limit the cost variation in APC 0058, we asked the Panel to consider the following options:

• Move the following four codes from APC 0058 to APC 0059: CPT code 29515, Application of short splint (calf to foot); CPT code 29520, Strapping; hip; CPT code 29530, Strapping; knee; and CPT code 29590, Denis-Brown splint strapping.

• Create a new APC to include a third level of strapping and casting application procedures by regrouping all procedures assigned to both APCs 0058 and 0059 based on the following clinical distinctions: Removal/revision, strapping/splinting, and casting.

• Package certain CPT codes assigned to APC 0058 with relevant procedures.

The Panel discussion revealed that codes grouped in APC 0058 are not always appropriately billed by hospitals. The Panel pointed out that code descriptors such as “strapping of the hip” are not commonly understood by hospital staff. The Panel noted that before implementation of OPPS, hospitals billed the items described by these codes as supplies (without a CPT code) when they were billed as anything other than an emergency room visit. They also stated that the use of these codes has been confused with the use of some codes associated with durable medical equipment. For these reasons, the Panel believed that the procedure costs reflected in our data are skewed. As a result, the Panel recommended that we do the following:

• Make no changes to APC 0058.

• Provide appropriate education and guidance to hospitals regarding appropriate use and billing of codes in APC 0058.

• Resubmit APC 0058 to the Panel for reevaluation when later data are available.

We propose to accept the Panel's recommendations except that we propose to move CPT code 29515 to APC 0059 due to the 2 times rule and the newer data we are using for this proposed rule.

APC 0079: Ventilation Initiation and Management

The codes in APC 0079 represent respiratory treatment and support provided in the outpatient setting. The cost variation among the assigned procedures in this APC raises concern about hospital coding practices. The median costs for these procedures range from $40 to $315. We asked the Panel to clarify whether these procedures are performed on outpatients or if they are performed on patients who come to the emergency room and are later admitted to the hospital as inpatients.

The Panel acknowledged that there are major problems associated with appropriately assigning codes to these procedures which results in incorrect billing. The Panel concluded that additional information is necessary to better understand the issues raised. The Panel also advised that CPT code 94660, Continuous positive airway pressure ventilation (CPAP), initiation and management, is a sleep apnea procedure used in the treatment of obesity and is clinically different from all other procedures in APC 0079. For these reasons, the Panel recommended the following:

• Remove CPT code 94660 from APC 0079 and create a new APC for this one procedure.

We propose to accept the Panel's recommendation by creating a new APC 0065, CPAP Initiation.

APC 0094: Resuscitation and Cardioversion

We requested the Panel's assistance in determining whether it is clinically appropriate to remove the cardioversion procedures from APC 0094 because the rest of the procedures assigned to APC 0094 are emergency procedures rather than elective. We proposed that the Panel consider the creation of a new APC for the cardioversion procedures or reassignment of the procedures to another APC that would be more appropriate in terms of clinical coherence and resource similarity. Splitting APC 0094 into two distinct groups, one for resuscitation procedures and the other for internal and external electrical cardioversion procedures, would not result in a significant difference in the APC payment rate for either of the new APCs.

The Panel considered whether it was clinically appropriate to combine internal and external cardioversion procedures (CPT codes 92960 and 92961, respectively) in the same APC. The Panel also questioned the conditions under which internal cardioversion procedures would be performed on an outpatient basis.

The Panel recommended that the only action we should take is to move CPT code 92961, Cardioversion, elective, electrical conversion of arrhythmia; internal (separate procedure), from APC 0094 to APC 0087, Cardiac Electrophysiology Recording/Mapping.

We propose to accept the APC Panel recommendation.

APC 0102: Electronic Analysis of Pacemakers/Other Devices

The neurologic procedures included in APC 0102 (CPT codes 95970 through 95975), are significantly more complex than the routine cardiac pacemaker programming codes also assigned to this APC. Because we believe these codes are clinically different, we asked the Panel to consider the following:

• Create a new APC for the neurologic codes.

• Move the neurologic codes to APC 0215, Level I Nerve and Muscle Tests.

One presenter appearing before the Panel stated that APC 0102 involves clinical functions related to four different categories of devices; that is, pacemakers, defibrillators, infusion pumps, and neurostimulators. The presenter, who represented a device manufacturers' association, contended that these four categories of devices differ clinically. The presenter also stated that patients receiving these devices are clinically different and are even treated by different hospital departments. The presenter recommended the following:

• Split APC 0102 into two APCs: One APC for electronic analysis of pacemakers and other cardiac devices and a separate APC for electronic analysis of infusion pumps and neurostimulators.

• The APC created for electronic analysis of infusion pumps and neurostimulators would include the following CPT codes:

Code

Descriptor

62367

Analyze spine infusion pump.

62368

Analyze spine infusion pump.

95970

Analyze neurostim, no prog.

95971

Analyze neurostim, simple.

95972

Analyze neurostim, complex.

95973

Analyze neurostim, complex.

95974

Cranial neurostim, complex.

95975

Cranial neurostim, complex.

• The APC created for electronic analysis of pacemakers and other cardiac devices would include the following CPT codes:

Code

Descriptor

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

Telephone analy, pacemaker.

93737

Analyze cardio/defibrillator.

93738

Analyze cardio/defibrillator.

93741

Analyze ht pace device sngl.

93742

Analyze ht pace device single.

93743

Analyze ht pace device dual.

93744

Analyze ht pace device dual.

The presenter stated that reorganizing APC 0102 as recommended would establish groups that are more clinically and resource similar than the current grouping. The presenter believes that APC 0102 as currently configured violates the 2 times rule. The median costs for the 21 procedures currently included in APC 0102 vary from $19 to $145. Other presenters clarified clinical aspects of the procedures, identified which practitioners perform them, the time it takes to perform them, and how they are to be billed. Yet another presenter speaking on behalf of a specialty society noted that the society had previously commented on this APC and requested that we remove CPT codes 93737 and 93738 from APC 0102.

The Panel noted that because most of the codes are new, having been established since 1996 (the base year of data available to the Panel), these newer procedures could not have been included in the data file used to create the current APC payment rates. In the absence of frequency and median cost data for many of these procedures, the Panel was concerned about reorganizing the codes in this APC. Nonetheless, the Panel recommended the following reorganization of APC 0102 to better reflect clinical coherence:

• APC 0102 be split into four new APCs: One APC for analysis and programming of infusion pumps and CSF shunts; a second for analysis and programming of neurostimulators; a third for analysis and programming of pacemakers and internal loop recorders; and a fourth for analysis and programming of cardioverter-defibrillators.

We propose to accept the Panel's recommendations and propose to create four new APCs as follows:

APC 0689: Electronic Analysis of Cardioverter-Defibrillator

APC 0690: Electronic Analysis of Pacemakers and Other Cardiac Devices

APC 0691: Electronic Analysis of Programmable Shunts/Pumps

APC 0692: Electronic Analysis of Neurostimulator Pulse Generators.

APC 0110: Transfusion

APC 0111: Blood Product Exchange

APC 0112: Extracorporeal Photopheresis

The procedures included in APC 0110 are those related only to the services associated with performing the blood transfusion and monitoring the patient during the transfusion; the costs associated with the blood products themselves are not included in APC 0110. We advised the Panel that we were not certain that cost data for blood transfusions excluded the costs of the blood products because the APC 0110 median cost of $289 seemed excessive. We expressed concern about hospital coding and billing practices for blood products, blood processing, storage, and transportation charges as represented in the 1996 data. We asked the Panel to advise us on how to clarify hospital billing and coding practices for blood transfusions; we also asked if the Panel members believe that the median costs for transfusion procedures include the costs for blood products and, if so, how the procedures should be adjusted to eliminate these costs.

A presenter representing a device manufacturers' association noted that these issues were examined extensively by several specialty societies that sent considerable data to us on the actual cost of the transfusion procedures before publication of the April 7, 2000 final rule (65 FR 18434). The presenter stated that the median costs for transfusion procedures that we used in calculating the final payment rate for APC 0110 was somewhat lower than the costs submitted by the specialty societies. The presenter believes that our experience under the APC system is too limited for us to make a judgment concerning the validity of the median costs. The presenter also believes that the payment rate for APC 0110 should have been adjusted to include costs for blood safety tests, such as the hepatitis and HIV look-back tests mandated by the FDA over the past several years, because these costs were not included in the 1996 data used to construct the APC rates. The presenter stated that these tests are expensive and that they increase the hospitals' costs to provide the blood. However, it was unclear whether these tests are separately billable under the lab fee schedule.

In addition, the presenter explained that blood centers do not charge hospitals for blood because it is voluntarily donated, not manufactured. The presenter stated that blood centers charge hospitals what it costs them to provide the blood and that hospitals bill

acquisition and processing charges rather than charges for the blood itself. Based on the information provided, the presenter urged the Panel not to revise APC 0110 until more data become available.

For APC 0111, another representative of a specialty society recommended that CPT code 36521, Therapeutic apheresis; with extracorporeal affinity column absorption and plasma reinfusion, be moved from APC 0111 to APC 0112. The presenter stated that CPT code 36521 is more similar clinically and in resource use to 36522, Photopheresis, extracorporeal which is in APC 0112. The presenter stated that a major difference between the procedure represented by CPT codes 36521 and 36520, Therapeutic Apheresis; plasma and/or cell exchange, which is also assigned to APC 0111, and the other procedures codes assigned to APC 0111, is that hospitals can bill separately for blood products such as the plasma or albumin used in performing plasma exchange procedures. The presenter described CPT code 36521 as a “self-contained” procedure not requiring the use of albumin or plasma, because the patient's own blood is processed through a machine and returned to the patient. The presenter stated that the materials and equipment used to perform this procedure make it much more costly than the other procedures assigned to APC 0111. The presenter, citing cost data from two medical centers where CPT code 36521 is frequently performed, stated that the total cost of the procedure, including the cost of the adsorption column, is approximately $2000. At this time, the commenter noted, only one of the adsorption columns (Prosorba) used for this procedure is eligible for transitional pass-through payments, which means that payments for this procedure, which are based upon the APC payment alone, are too low when one of the other columns is used and no additional pass-through payment is made. It was stated that the cost of many of the adsorption columns is over $1000 per column. The presenter concluded that moving CPT code 36521 from APC 0111 to APC 0112 would comply with the statutory requirements for clinical coherence and resource similarity among procedures in the same APC.

The Panel discussed various adsorption devices used in performing CPT code 36521, their eligibility for transitional pass-through payments, as well as the clinical and resource use difference between CPT codes 36520 and 36551. After considerable discussion, the Panel recommended the following:

• Take no action on APC 0110.

• Move CPT code 36521 from APC 0111 to APC 0112 to achieve clinical coherence and resource similarity with photopheresis procedures included in APC 0112. However, the Panel cautioned that the payment for APC 0112 captured the cost of the entire procedure including the cost of the adsorption column. For this reason, any additional payment for the adsorption column through the transitional pass-through payment mechanism would be a duplicate payment. Therefore, the panel asked that CMS address this problem when considering their recommendation.

We propose to accept the Panel's recommendations. We note that effective April 1, 2001, the Prosorba column is no longer eligible for a transitional pass-through payment (see PMA-01-40 issued on March 27, 2001).

APC 0116: Chemotherapy Administration by Other Technique Except Infusion

APC 0117: Chemotherapy Administration by Infusion Only

APC 0118: Chemotherapy Administration by Both Infusion and Other Technique

We had received several comments requesting that oral delivery of chemotherapy and delivery of chemotherapy by infusion pumps and reservoirs be recognized for payment under the OPPS. We asked the Panel to examine this issue.

With regard to oral administration of chemotherapy, the Panel heard several presenters discuss the need for extensive beneficiary education prior to administration of oral anticancer agents. The Panel agreed that the beneficiaries actually self-administer the drug and that beneficiary education was appropriately billed as a clinic visit. The Panel stated that this would be true whether the education involved cancer chemotherapy, diabetes management, or congestive heart failure management. Therefore, the Panel recommended that no new codes be created to specifically recognize oral administration of chemotherapy.

With regard to recognizing chemotherapy administration through infusion pumps and ports, the Panel heard several presentations that this is becoming a common method of administering not only cancer chemotherapy but also for administering other types of pharmaceuticals. It was pointed out that because CPT codes 96520, Refilling and maintenance of portable pump, and 96530, Refilling and maintenance of implantable pump or reservoir, were excluded from the OPPS it was impossible for hospitals to be paid when performing these services. After lengthy discussion, the Panel recommended that refilling and maintenance of pumps and reservoirs be assigned to an APC.

The Panel also discussed the current HCPCS Q codes for chemotherapy administration and concluded that these codes should continue to be recognized in the OPPS. In addition, the Panel discussed whether a new Q code should be developed for extended chemotherapy infusions.

In summary, the Panel recommended the following:

• Hospitals be allowed to bill for patient education under the appropriate clinic codes.

• CPT codes 96520 and 96530 be assigned to a new APC.

• The current HCPCS Level II Q codes for chemotherapy administration should continue to be used.

• There is no need to develop a new HCPCS code for “extended chemotherapy infusions.”

• CMS should consider developing a new HCPCS code for flushing of ports and reservoirs.

We propose to accept all the Panel recommendations except for the recommendation regarding flushing of ports and reservoirs. Flushing is performed in conjunction with either a chemotherapy administration service or an outpatient clinic visit. In the first case, flushing is part of the chemotherapy administration and its costs are adequately captured in the costs of the chemotherapy administration code. In the second case, we believe that the costs of flushing are adequately captured in the costs of the clinic visit and need not be paid separately. We are proposing to create a new APC 0125, Refilling of Infusion Pump.

APC 0123: Bone Marrow Harvesting and Bone Marrow/Stem Cell Transplant

In APC 0123, the 1996 median cost for CPT code 38230, Bone marrow harvesting for transplantation, was only $15. We believe that this cost is lower than the actual cost of the procedure. Further, we do not have sufficient data to determine how often bone marrow and stem cell transplant procedures are performed on an outpatient basis. For these reasons, we requested the Panel's advice in clarifying the resources used in performing the procedures assigned to APC 0123, and the extent to which these procedures are performed on an outpatient basis.

The Panel noted that these transplant and stem cell harvesting procedures are

being increasingly performed on an outpatient basis. One presenter representing a specialty society stated that 95 percent of these procedures are performed in the hospital outpatient setting. The presenter shared cost data from the bone marrow transplant unit of an academic medical center that showed the cost to harvest bone marrow to be about $1,800. The presenter observed that this cost is significantly higher than the APC payment rate of about $205 for APC 0123. Another presenter representing a group of hospitals stated that the supply costs alone for bone marrow harvesting are more than the current APC payment for the procedure. The presenter suggested that miscoding may have contributed to the low $15 median cost reflected in our database. After discussion, the Panel recommended the following:

• Make no changes in the procedures assigned to APC 0123 in the absence of sufficient data to support such modifications.

• The two presenters on this APC issue submit cost data for the Panel to use in reevaluating this issue at its 2002 meeting.

We note that our analysis of the more recent claims data we are using to reclassify and recalibrate the APCs in this proposed rule reveals a significant increase in costs for this APC resulting in a proposed payment rate that is double the current rate. However, very few procedures (fewer than 20) were billed on an outpatient basis. We will have the Panel review this APC again at their next meeting.

APC 0142: Small Intestine Endoscopy

APC 0143: Lower GI Endoscopy

APC 0145: Therapeutic Anoscopy

APC 0147: Level II Sigmoidoscopy

APC 0148: Level I Anal/Rectal Procedures

APC 0149: Level II Anal/Rectal Procedures

APC 0150: Level III Anal/Rectal Procedures

We presented these seven APCs to the Panel because of the inconsistencies in the median costs for some procedures included in APCs 0142, 0143, 0145, and 0147. We advised the Panel that our cost data do not show a progression of median costs proportional to increases in clinical complexity as we would expect. For example, the data indicate that a therapeutic anoscopy assigned to APC 0145 costs more than twice as much as a flexible or rigid sigmoidoscopy assigned to APC 0147. We stated our concern that cost disparity could provide incentives to use inappropriate procedures. Because of these concerns, we asked the Panel's advice in determining whether one of the following actions should be taken:

• Divide the codes in APC 0142 into separate APCs representing ileoscopy and small intestine procedures.

• Combine diagnostic anoscopy and Level I sigmoidoscopy.

• Merge APCs 0143, 0145, and 0147 into one APC.

We also asked the Panel whether the costs associated with codes in APC 0145 appeared to be valid.

During the Panel discussion, it was noted that the data distributed to the Panel for these APCs indicated that most of the procedures are billed as single procedures only 50 percent of the time. This raised questions as to whether the data include procedures such as flexible sigmoidoscopies that were miscoded as rigid sigmoidoscopies, colonoscopies, and anoscopies. In examining the data, the Panel considered what impact this miscoding would have on the cost data, and discussed the clinical approaches used to perform some of the procedures, what type of practitioners perform them, and other procedures and supplies that would be billed with them. As a result of this discussion, the Panel concluded that the data anomalies were probably attributable to miscoding because hospitals have not received sufficient guidance and information on appropriately coding procedures included in these APCs. The Panel also agreed that it would need more current data before it could consider reconfiguring these APCs. Therefore, the Panel recommended that we do the following:

• Make no changes to APCs 0142, 0143, 0145, and 0147.

• Provide information and guidance to better assist hospitals in understanding how to bill appropriately for services included in APCs 0142, 0143, 0145, and 0147.

• Resubmit these APCs to the Panel for review when newer data are available.

We propose to accept the Panel's recommendations.

APC 0151: Endoscopic Retrograde Cholangio-Pancreatography (ERCP)

We advised the Panel that we have received comments that indicate that it is inappropriate to assign both diagnostic and therapeutic ERCP procedures to the same APC. The commenters allege that virtually every hospital performs diagnostic ERCPs but only teaching hospitals perform therapeutic ERCPs. Based on our current data, if we created two APCs for ERCP procedures, the APC payment rate for therapeutic ERCPs would be lower than that for diagnostic ERCPs (approximately $526 and $535, respectively). Therefore, we requested the Panel's advice to help us determine whether to create separate APCs for diagnostic and therapeutic ERCP procedures.

A presenter speaking on behalf of a specialty society made the following points:

• ERCP is the most complex endoscopy procedure to perform and is usually performed by gastroenterologists.

• ERCP is usually performed at large hospitals.

• The most complex ERCP procedures are usually performed in teaching hospitals.

• Current payments for ERCP are lower than the costs to perform the procedure (based on cost and frequency data gathered from several teaching hospitals).

• Single claims should not be used to calculate an APC payment rate for ERCP services because a single ERCP procedure usually consists of several components, each with its own CPT code (e.g., sphincterotomy and stent placement). Therefore, an ERCP billed as a single CPT code would represent aberrant billing and would not accurately reflect the costs of an ERCP.

The OPPS data distributed to the Panel verified that the vast majority of the ERCP procedures are performed as multiple procedures. The Panel agreed that the use of single claims data could possibly skew the APC payment rate for ERCP services.

The Panel recommended that we do the following:

• Do not reconfigure the ERCP procedures in APC 0151.

• Resubmit this issue to the Panel for review when more recent data are available.

• Explore the feasibility of using multiple claims rather than single claims to calculate appropriate APC payment rates for ERCP procedures.

We propose to accept the Panel's recommendations. We are currently reviewing the potential for using multiple claims data for determining payment rates for ERCP procedures. As a first step in the process, in this proposed rule, we have determined a payment rate for ERCP procedures based on both single claims for ERCP procedures and, because ERCP procedures are typically done under radiologic guidance, on claims that included both an ERCP procedure and a radiologic supervision or guidance

procedure in this APC. Using these additional claims has resulted in significantly increasing the number of claims used to determine the payment rate for this APC and in a much higher proposed payment rate (about $825).

APC 0160: Level I Cystourethroscopy and other Genitourinary Procedures

APC 0161: Level II Cystourethroscopy and other Genitourinary Procedures

APC 0162: Level III Cystourethroscopy and other Genitourinary Procedures

APC 0163: Level IV Cystourethroscopy and other Genitourinary Procedures

APC 0169: Lithotripsy

We advised the Panel that we had received a number of comments that advocated moving CPT code 52337, Cystoscopy, with ureteroscopy and/or pyeloscopy; with lithotripsy (ureteral catheterization is included), from APC 0162 to APC 0163. (We note that CPT code 52337 was deleted for 2001 and replaced with an identical CPT code, 52353. We will use the new code in the following discussion.) Because of these comments, we sought the Panel's advice in examining the clinical and resource distinctions between CPT code 52353 and other procedures assigned to APC 0162. Other information shared with the Panel noted that most of the procedures included in APC 0162 are complicated cystourethroscopies while those assigned to APC 0163 are largely prostate procedures.

One presenter representing a device manufacturer discussed the merits of reassigning CPT code 52353 to either APC 0163 or 0169 (APC 0169 contains a single CPT code, 50590, Lithotripsy, extracorporeal shock wave (ESWL)). The presenter was concerned that our decision to assign the cystourethroscopic procedure to APC 0162 rather to APC 0163 was not explained in our April 7, 2000 final rule.

Furthermore, the presenter noted that this decision resulted in a 40 percent decline in payment for the procedure which will make it difficult for hospitals to provide this service because the capital equipment, probes, and fibers required to perform the procedure are expensive. Moreover, the probes and fibers are ineligible for transitional pass-through payments because they are not single-use items. At the Panel's request, the presenter discussed the clinical differences between CPT codes 52353 and 50590. The presenter stated that code 50590 is a noninvasive procedure that involves breaking up kidney stones using shock waves produced outside the patient while code 52353 is an invasive procedure that requires the urologist to insert different instruments through a cystoscope and a uretheroscope to access stones in the upper urinary tract (the ureter and kidney).

The presenter also compared the cost of performing CPT code 52353 with that for CPT code 52352, which involves the mechanical removal of stones. The presenter asked the Panel to consider the following two options to resolve this issue:

• Reassign CPT code 52353 to APC 0169, Lithotripsy. The presenter believes that this would be the most appropriate assignment clinically and from a cost perspective because both involve lithotripsy and require expensive capital equipment, fibers, and probes. Also, other payers using a similar procedure grouping system, ambulatory procedure groups (APGs), have grouped these procedures together.

• Restore CPT code 52353 to its original APC assignment, APC 0163.

In addition, the presenter expressed concern that the large number of procedures assigned to APC 0162 makes it difficult to achieve clinical homogeneity within the APC. The presenter asked that we work with appropriate groups to reconfigure APC 0162 because, as constituted, it appears to violate the 2 times rule.

The Panel had a lengthy discussion regarding whether to move CPT code 52353 to APC 0163 or to APC 0169. The Panel considered the resources used for procedures in APCs 0163 and 0169 and noted that the lithotriptor used for code 50590 may be purchased or leased and that lease rates for lithotriptors have frequently been inflated. Furthermore, it noted that much of the equipment and resource use required for code 52353 is similar to the resource use of other procedures in APC 0163. In spite of these considerations, the Panel voted eight to seven to recommend moving CPT code 52353 from APC 0162 to APC 0169 because both codes 52353 and 50590 are lithotripsy procedures.

We reviewed the panel discussion very carefully and noted the close vote. After careful consideration, we propose to disagree with the Panel's recommendation and move code 52353 to APC 0163. The 1999-2000 cost data, which contains over 400 single claims for code 52353 and over 6,000 single claims for code 50590, show that the median cost for code 52353 is much more similar to the median cost of other procedures in APC 0163 than it is to the median cost of APC 0169. Although both codes involve lithotripsy, the type of equipment used in the two procedures is very different. Clinically, the surgical approach used for code 52353 and the resources used (e.g., anesthesia and operating room costs) are much more similar to other procedures in APC 0163 than to those for code 50590. Additionally, the median cost for code 50590, which is $700 higher than that of code 52353, is dependent on the widely variable arrangements hospitals make for use of the extracorporeal lithotriptor. Therefore, we believe that placing code 52353 in APC 0163 maintains its clinical coherence and similar use of resources.

APC 0191: Level I Female Reproductive Procedures

APC 0192: Level II Female Reproductive Procedures

APC 0193: Level III Female Reproductive Procedures

APC 0194: Level IV Female Reproductive Procedures

APC 0195: Level V Female Reproductive Procedures

This group of APCs was presented to the Panel because APC 0195 violates the 2 times rule. To facilitate the Panel's review of this issue, we distributed cost data on all the female reproductive procedures assigned to these five APCs. These data showed that the median costs for procedures assigned to APC 0195 ranged from a low of $365 to a high of $1,817. The CPT code 57288, Sling operation for stress incontinence (e.g., fascia or synthetic), which is assigned to APC 0195, has the highest median cost of the procedures in this group. We discussed with the Panel two clinical options for rearranging the procedures assigned to APC 0195 to comply with the 2 times rule. The first option would split APC 0195 into two separate APCs by separating vaginal procedures from abdominal procedures. The second option would split APC 0195 into three distinct APCs by retaining the separate APCs for abdominal and vaginal procedures and further distinguishing vaginal procedures based on whether they are simple or complex.

The Panel discussed the rapid increase in the rate at which CPT code 57288 is performed on an outpatient basis. The Panel stated that this procedure is becoming more routine and replacing many of the older, more complex urinary dysfunctional procedures. Questions were raised about the frequency with which this procedure is performed alone as opposed to being performed as one of several procedures. The Panel was advised that the sling material and the relevant anchors used in performing

CPT code 57288 are eligible for transitional pass-through payments.

One presenter, speaking on behalf of a device manufacturer, supported our proposal to divide APC 0195 into different clinical groupings. The presenter's testimony was limited to a discussion of CPT code 57288. The presenter concurred with the Panel's assessment of the current utilization trends for CPT code 57288, emphasized the high costs associated with performing this procedure, and highlighted the wide variation in techniques and devices used to perform it. Because of these factors, the presenter believes that the procedure is underpaid and that the 1996 cost data may not fully reflect the actual costs associated with performing CPT code 57288.

The Panel also closely reviewed the other four APCs for female reproductive procedures to ensure each was clinically homogeneous. As a result of this review, the Panel recommended a number of changes for these APCs. These recommendations and those for APC 0195 are as follows:

• Move CPT codes 56350, Hysteroscopy, diagnostic, and 58555, Hysteroscopy, diagnostic/separate procedure, from APC 0191 to APC 0194 (In 2001, CPT code 56350 was replaced with CPT code 58555.)

• Divide APC 0195 into two APCs to distinguish vaginal procedures from abdominal procedures.

• Retain the following vaginal procedures in APC 0195:

CPT code

Descriptor

57555

Excision of cervical stump, vaginal approach: with anterior and/or posterior repair.

58800

Drainage of ovarian cyst(s), unilateral or bilateral, (separate procedure); vaginal approach.

58820

Drainage of ovarian abscess; vaginal approach, open.

57310

Closure of urethrovaginal fistula.

57320

Closure of vesicovaginal fistula; vaginal approach.

57530

Trachelectomy (cervicectomy), amputation of cervix (separate procedure).

57291

Construction of artificial vagina; without graft.

57220

Plastic operation on urethral sphincter, vaginal approach (e.g., Kelly urethral plication).

57550

Excision of cervical stump, vaginal approach.

57556

Excision of cervical stump, vaginal approach; with repair of enterocele.

57289

Pereyra procedure, including anterior colporrhaphy.

57300

Closure of rectovaginal fistula; vaginal or transanal approach.

57284

Paravaginal defect repair (including repair of cystocele, stress urinary incontinence, and/or incomplete vaginal prolapse).

57265

Combined anteroposterior colporrhaphy; with enterocele repair.

57268

Repair of enterocele vaginal approach (separate procedure).

56625

Vulvectomy simple; complete.

58145

Myomectomy excision of fibroid tumor of uterus, single or multiple (separate procedure); vaginal approach.

57260

Combined anteroposterior colporrhaphy.

57240

Anterior colporrhaphy, repair of cystocele with or without repair of urethrocele.

57250

Posterior colporrhaphy, repair of rectocele with or without perineorrhaphy.

56620

Vulvectomy simple; partial.

57522

Conization of cervix, with or without fulguration, with or without dilation and curettage, with or without repair; loop electrode excision.

• Include the following abdominal procedures in a new APC titled “Level VI Female Reproductive Procedures.”

CPT code

Descriptor

58920

Wedge resection or bisection of ovary, unilateral or bilateral.

58900

Biopsy of ovary, unilateral or bilateral (separate procedure).

58925

Ovarian cystectomy, unilateral or bilateral.

57288

Sling operation for stress incontinence (e.g., fascia or synthetic).

57287

Removal or revision of sling for stress incontinence (e.g., fascia or synthetic).

• Move CPT code 57107 from APC 0194 to APC 0195, Level V Female Reproductive Procedures.

• Move CPT code 57109, Vaginectomy with removal of paravaginal tissue (radical vaginectomy) with bilateral total pelvic lympadenectomy and para-oortic lymph node sampling (biopsy), from APC 0194 to the new APC, Level VI Female Reproductive Procedures.

We propose to accept all of these Panel recommendations. These APCs would be reconfigured and renumbered as APCs 0188 to 0194. We are also proposing to add new APCs for Level VII and Level VIII Female Reproductive Procedures (APCs 0195 and 0202, respectively) based on the 1999-2000 claims data and the 2 times rule.

APC 0210: Spinal Tap

APC 0211: Level I Nervous System Injections

APC 0212: Level II Nervous System Injections

The Panel heard testimony from two presenters regarding the merits of modifying these three APCs. The first presenter, speaking on behalf of a manufacturer, discussed CPT code 64614, Chemodenervation of muscles; extremities and/or trunk muscles (e.g., for dystonia, cerebral palsy, multiple sclerosis). The presenter advised the Panel that although this is a new code for 2001, the procedure is well established and formerly coded using CPT code 64640, Destruction by neurolytic agent; other peripheral nerve or branch. The new code was created to distinguish chemodenervation of limb and trunk muscles from other chemodenervation procedures. The presenter claimed that this code is similar both clinically and in terms of resource use to the other chemodenervation procedures assigned to APC 0211, so it should be assigned to that APC instead of APC 0971, New Technology—Level II, where it is currently assigned.

The second presenter, representing a specialty society, proposed regrouping the procedures assigned to APCs 0210, 0211, and 0212 based on similar levels of complexity and median costs. The presenter's proposal also included reassignment to these APCs of interventional pain procedures

currently assigned to APCs 040, Arthrocenteris and Ligament/Tendon Injection, 0105, Revision/Removal of Pacemakers, AICD, or Vascular Device, and 0971. The presenter contended that it was essential to reconfigure these APCs because of disparity in resource use among procedures currently assigned to the same APC. The presenter also claimed that many of these procedures are being underpaid in their current APC and, for that reason, a number of hospitals have chosen not to perform them in the outpatient setting. The presenter proposed establishing the following five levels of interventional pain procedures by regrouping the procedures into new APCs as stated below:

• Level I Nerve Injections (to include Trigger Point, Joint, Other Injections, and Lower Complexity Nerve Blocks):

CPT code

Reassigned

from APC

20550

040

20600

040

20605

040

20610

040

64612

0211

64613

0211

64614

0971

64400-64418

0211

64425

0211

64430

0211

64435

0211

64445

0211

64450

0211

64505

0211

64508

0211

• Level II Nerve Injections (to include Moderate Complexity Nerve Blocks and Epidurals):

CPT code

Reassigned from APC

27096

0210

62270

0210

62272

0210

62273

0212

62310-62319

0212

Level III Nerve Injections (to include Moderately High Complexity Epidurals, Facet Blocks, and Disk Injections):

CPT code

Reassigned from APC

62280-62282

0212

62290

Currently Packaged.

62291

Currently Packaged.

64420-64421

0211

64470

0211

64472

0211

64475-64476

0211

64479

0211

64480

0211

64483-64484

0211

64510

0211

64520

0211

64530

0211

64630

0211

64640

0211

• Level IV Nerve Injections (to include High Complexity Lysis of Adhesions, Neurolytic Procedures, Removal of Implantable Pumps and Stimulators):

CPT code

Reassigned

from APC

62263

0212

64600

0211

64605

0211

64610

0211

64620

0211

64622-64623

0211

64626-64627

0211

64680

0211

62355

0105

62365

0105

• Level V Nerve Injections (to include Highest Complexity Disk and Spinal Endoscopies): CPT code 62287, Aspiration or decompression procedure, percutaneous, of nucleus pulposus of invertebral disk, any method, single or multiple levels, lumbar (e.g., manual or automated percutaneous diskectomy, percutaneous laser diskectomy), reassigned from APC 0220, Level I Nerve Procedures.

The Panel recommended reassignment of CPT code 64614 from APC 0971 to APC 0211.

Concerning the suggested regrouping of interventional pain procedures, the Panel agreed that the recommended division of these procedures by clinical complexity would reflect resource use and was a reasonable approach to take. It was pointed out to the Panel that the costs for CPT codes 62290, Injection procedure for diskography, each level; lumbar, and 62291, Injection procedure for diskography, each level; cervical or thoracic, were packaged into the procedures with which they were billed. Therefore, the Panel concurred with the regrouping of procedures to establish Levels I, II, III, and IV with the following exceptions:

• The Panel recommended that CPT codes 62290 and 62291 not be included in Level III because they are packaged injections and should not be unpackaged and paid separately.

• The Panel opposed moving CPT codes 62355, Removal of previously implanted intrathecal or epidural catheter, and 62365, Removal of subcutaneous reservoir or pump, previously implanted for intrathecal or epidural infusion, from APC 0105 to Level IV Nerve Injections because they were neither clinically similar nor similar in resource use to the other codes assigned to this proposed APC.

• The Panel opposed the creation of Level V Nerve Tests as it included only one code and recommended that CPT code 62287 remain in APC 220.

We propose to accept the Panel's recommendations for these services. We propose to create new APCs 0203, 0204, 0206, and 0207 to accommodate these proposed changes.

APC 0215: Level I Nerve and Muscle Tests

APC 0216: Level II Nerve and Muscle Tests

APC 0217: Level III Nerve and Muscle Tests

We advised the Panel that we had received a comment contending that assignment of CPT code 95863, Needle electromyography, three extremities with or without related paraspinal areas, to APC 0216 created an inappropriate incentive to perform tests on three extremities rather than two or four extremities. The payment of about $144 for APC 0216 is greater than the payment of about $58 for the same tests when performed on one, two, or four extremities. This is due to the fact that CPT codes 95860, 95861, and 95864, Needle electromyography, one, two, and four extremities with or without related paraspinal areas, respectively, are assigned to APC 0215. We distributed data to the Panel that showed a median cost of about $141 for CPT code 95863, which is more than 3 times that of the median cost of $41 for CPT code 95864. We asked the Panel to consider the reassignment of CPT code 95863 from APC 0216 to APC 0215 and advised the Panel that, based on cost data available at the time of our meeting, this change could potentially reduce the payment for APC 0216. It was also noted that this change could result in a payment increase for APC 0215.

The Panel reviewed the cost data for APCs 0215 and 0216 and noted that the median costs for both CPT codes 95863 and 95864 appeared aberrant. Based on the information presented, the Panel recommended that we move CPT code 95863 from APC 0216 to APC 0215.

We propose to accept the Panel's recommendation with one exception. We are proposing to revise these APCs based on the 1999-2000 cost data and the 2 times rule, and CPT code 95863 would be assigned to a reconfigured APC for Level II Nerve and Muscle Tests (APC 0218).

APC 0237: Level III Posterior Segment Eye Procedures

We advised the Panel that procedures assigned to APC 0237 are high volume procedures and rank among the top outpatient procedures billed under Medicare. We have received a number of comments disagreeing with the assignment of CPT code 67027, Implantation of intravitreal drug delivery system (e.g., ganciclovoir implant), which includes concomitant removal of vitreous, to APC 0237. This procedure was added to the CPT coding system after 1996 and, therefore, was not included in the 1996 data. We advised the Panel that ganciclovoir, the drug implanted during this procedure, is paid separately as a transitional pass-through item. Because the drug is paid separately, it should not be included in determining whether the resources associated with the surgical procedure are similar to the resources required to perform the other procedures assigned to APC 0237. We advised the Panel that, of the procedures assigned to APC 0237, we believe that CPT code 67027 is related to codes 65260, 65265, and 67005, all of which involve removal of foreign bodies and vitreous from the eye. To ensure that CPT code 67027 is assigned to the appropriate APC, we asked the Panel to consider creation of a new APC, Level IV Posterior Segment Eye Procedures, for CPT codes 65260, 65265, 67005, and 67027. Based on the APC rates effective January 1, 2001, the suggested change could lower the APC rate for the four procedures by $400.

The Panel reviewed the data and did not believe it was sufficient to support the creation of a new APC for these four procedures. Therefore, the Panel recommended that APC 0237 remain intact and that more recent claims data be analyzed to determine whether CPT code 67027 is similar to the other procedures assigned to APC 0237.

Based on the 1999-2000 claims data, we have determined that the resources used for code 67027 are similar to other procedures in APC 0237. However, we will present APCs 0235, 0236, and 0237 to the Panel at their next meeting to determine whether any further changes should be made. We are proposing to make various other changes to these APCs based on the new data and the 2 times rule.

APC 0251: Level I ENT Procedures

This APC violates the 2 times rule because it consists of a wide variety of minor ENT procedures, many of which are low volume services or codes for nonspecific procedures. In order to correct this problem, we proposed to the Panel that this APC be split by surgical site (e.g., nasal and oral). After reviewing cost data, the Panel agreed that the APC should be split but that current data were insufficient to determine how that split should be made. Therefore, the Panel asked that this APC, along with more recent cost data, be placed on the agenda at the next meeting.

We agree that this APC should be reviewed by the Panel at its next meeting. However, our review of the more recent cost data indicates that significant violations of the 2 times rule still exist. In order to correct this problem, but keep the APC as intact as possible, we propose to move CPT codes 30300, Remove foreign body, intranasal; office type procedure, 40804, Removal of embedded foreign body, vestiblue of mouth; simple, and 42809, Removal of foreign body from pharynx, to APC 0340, Minor Ancillary Procedures. This APC consists of procedures such as removal of earwax that require similar resources.

APC 0264: Level II Miscellaneous Radiology Procedures

We asked the panel to review this APC because it violated the 2 times rule and consisted of a wide variety of unrelated procedures. Specifically, we believe that the costs associated with CPT codes 74740, Hysterosalpingography, radiological supervision and interpretation, and 76102, Radiologic examination, complex motion (e.g., hypercycloidal) body section (e.g., mastoid polytomography), other than with urography; bilateral, were aberrant and that we would significantly underpay these procedures if we moved them into a lower paying APC. We also asked the Panel to determine whether this APC and APC 0263, Level I Miscellaneous Radiology Procedures, should be reconfigured by body system. After considerable discussion, the Panel agreed that the procedures in these APCs were not clinically homogeneous; however, it recommended that we leave these APCs intact because the data do not support any more coherent reorganization. The Panel requested that this APC be placed on the agenda for the 2002 meeting.

We agree with the Panel with the following revisions. First, BIPA requires us to assign procedures requiring contrast into different APCs from procedures not requiring contrast. This required changes to a number of radiologic APCs including APCs 0263 and 0264. In addition, in this proposed rule, we would move CPT code 75940, Percutaneous Placement of IVC filter, radiologic supervision and interpretation, to a new APC 0187, Placement/Reposition Miscellaneous Catheters, because its costs were significantly higher than the costs of the procedures remaining in APC 0264.

APC 0269: Echocardiogram except Transesophageal

APC 0270: Transesophageal Echocardiogram

We asked the Panel to consider splitting these APCs based on whether or not 2D imaging is employed. After review of the data, the Panel recommended that we leave these APCs intact.

We propose to leave APC 0270 intact except for the addition of two new codes for transesophageal echocardiography. We also propose to split APC 0269 into two APCs, APC 0269, Level I Echocardiogram Except Transesophageal and APC 0697, Level II Echocardiogram Except Transesophageal. One APC (0697) would include comprehensive echocardiograms and the other APC (0269) would include limited/follow-up echocardiograms and doppler add-on procedures.

APC 0274: Myelography

We advised the Panel that APC 0274 is clinically homogeneous but that it violates the 2 times rule. Procedures assigned to this APC include radiological supervision and interpretation of diagnostic studies of central nervous system structures (e.g., spinal cord and spinal nerves) performed after injection of contrast material. We shared data with the Panel that showed the median costs for the procedures assigned to this APC ranged from a low of about $109 to a high of about $295. We asked the Panel's recommendation for reconfiguring APC 0274 to comply with the 2 times rule.

We informed the Panel members that we packaged the costs associated with radiologic injection codes into the radiological supervision and interpretation codes with which they were reported. The reason for doing this is that hospitals incur expenses for providing both services and they typically perform both an injection and a supervision and interpretation procedure on the same patient. Therefore, since neither an injection code nor a supervision and interpretation code should be billed alone, it would not be appropriate for us to use single claims data to determine the costs of performing these procedures. However, we are using single claims data in order to accurately

determine the costs of performing procedures. Therefore, in order to accurately determine the costs of a complete radiologic procedure, we had to package the costs of the injection component into the cost of the supervision and interpretation component with which it was billed. The Panel believed that, in 1996, hospitals generally did not bill the injection code when performing myelography. Furthermore, in 1996, some hospitals kept patients overnight after a myelogram. More recently, postmyelogram recovery time has decreased to about 6 hours. For these reasons, the Panel believed that the median costs of $109 and $174 probably do not represent the actual resources used for CPT codes 70010, Myelography, posterior fossa, radiological supervision and interpretation, and 70015, Cisternography, positive contrast, radiological supervision and interpretation. Therefore, the Panel recommended the following:

• Make no changes to APC 0274.

• Review new cost data to determine whether payment would increase for APC 0274.

We propose to accept the Panel's recommendations.

APC 0279: Level I Diagnostic Angiography and Venography

APC 0280: Level II Diagnostic Angiography and Venography

We presented these codes to the Panel for several reasons. APC 0279 fails the 2 times rule, there are numerous codes in these APCs with no cost data, there are numerous “add on” codes in these APCs, and many of these procedures were performed infrequently in the outpatient setting in 1996.

The Panel reviewed the clinical coherence of both APCs as well as the resources required to perform all these procedures. The Panel believed that it would be unusual for many of these procedures to be performed separately and that we would need to look at multiple claims to get accurate data. The Panel recommended the following:

• Create a new APC (APC 0287, Complex Venography) with the following CPT codes: 75831, 75840, 75842, 75860, 75870, 75872, and 75880.

• Move CPT codes 75960, 75961, 75964, 75968, 75970, 75978, 75992, and 75995 from APC 0279 to APC 0280.

We propose to accept the Panel's recommendations. We note that, as proposed, APC 0279 violates the 2 times rule because of the low cost data for CPT code 75660, Angiography, external carotid, unilateral selective, radiological supervision and interpretation. We believe that, for these procedures, these cost data are aberrant. This code is clinically similar to the other codes in APC 0279 and moving code 75660 to an APC with a lower weight could be an inappropriate APC assignment. Therefore, we believe that an exception to the 2 times rule is warranted.

APC 0300: Level I Radiation Therapy

APC 0302: Level III Radiation Therapy

We presented this APC to the Panel because we received comments that the assignment of CPT code 61793, Stereotactic radiosurgery (particle beam, gamma ray, or linear accelerator), one or more sessions, to APC 0302 would result in inappropriate payment of this service. Many commenters wrote that stereotactic radiosurgery and intensity modulated radiation therapy (IMRT) required significantly more staff time, treatment time, and resources than other types of radiation therapy. Other commenters disagreed with our decision, effective January 1, 2001, to discontinue recognizing CPT code 61793, and to create two HCPCS level 2 codes, G0173, Stereotactic radiosurgery, complete course of therapy in one session, and G0174 Intensity modulated radiation therapy (IMRT) plan, per session, to report both stereotactic radiosurgery and IMRT.

We reported to the Panel that the APC assignment of these G codes and their payment rate was based on our understanding that stereotactic radiosurgery was generally performed on an inpatient basis and delivered a complete course of treatment in a single session, while IMRT was performed on an outpatient basis and required several sessions to deliver a complete course of treatment. We also explained to the Panel that it was our understanding that multiple CPT codes were billed for each session of stereotactic radiosurgery and IMRT. Therefore, we believed that the payment for APC 0302 was only a fraction of the total payment a hospital received for performing stereotactic radiosurgery or IMRT on an outpatient basis.

Radiosurgery equipment manufacturers, physician groups, and patient advocacy groups have both submitted comments to us and provided testimony to the APC Panel on these issues. These comments have convinced us that we did not clearly understand either the relationship of IMRT to stereotactic radiosurgery or the various types of equipment used to perform these services.

We are proposing to set forth a proposed new coding structure that more accurately reflects the clinical use of these services and the resources required to perform them. Our understanding of these services, based on review of the comments, the testimony before the Panel, the Panel discussion and recommendations, and meetings with knowledgeable stakeholders, is described below.

Recent developments in the field of radiation oncology include the ability to deliver high doses of radiation to abnormal tissues (e.g., tumors) while minimizing delivery of radiation to adjacent normal tissues. Collectively, these procedures are called stereotactic radiosurgery and IMRT.

Clinically, there are essentially two services required to deliver stereotactic radiosurgery and IMRT. First, there is “treatment planning,” which includes such activities as determining the location of all normal and abnormal tissues, determining the amount of radiation to be delivered to the abnormal tissue, determining the dose tolerances of normal tissues, and determining how to deliver the required dose to abnormal tissue while delivering a dose to adjacent normal tissues within their range of tolerance. These activities include the ability to manufacture various treatment devices for protection of normal tissue as well as the ability to ensure that the plan will deliver the intended doses to normal and abnormal tissue by simulating the treatment. Second, there is “treatment delivery,” which is the actual delivery of radiation to the patient in accordance with the treatment plan. Treatment delivery includes such activities as adjusting the collimator (a device that filters the radiation beams), doing setup and verification images, treating one or more areas, and performing quality control.

Treatment planning requires specialized equipment including a duplicate of the actual equipment used to deliver the treatment, the ability to perform a CT scan, various disposable supplies, and involvement of various staff such as the physician, the physicist, the dosimetrist, and the radiation technologist. Treatment delivery requires specialized equipment to deliver the treatment and the involvement of the radiation technologist. The physician and physicist provide general oversight of this process.

Although there are several types of equipment, produced by several manufacturers, used to accomplish this treatment, it is the consensus of the commenters and the Panel that the most useful way to categorize stereotactic radiosurgery and IMRT is by the source of radiation used for the treatment and

not by the type of equipment used. One reason for this is that the clinical indications for stereotactic radiosurgery and IMRT overlap. Therefore, a single disease process can be treated by either modality but the cost of treatment varies by source of radiation used for the treatment. Second, while both stereotactic radiosurgery and IMRT can deliver a complete course of treatment in either one or multiple sessions, the cost of treatment delivery per session is relatively fixed, and is closely related to the source of radiation used for the treatment. Therefore, we believe that appropriate APC assignment and payment can be made by creating a small number of HCPCS codes to describe these services. The proposed codes are as follows:

• GXXX1 Multi-source photon stereotactic radiosurgery (Cobalt 60 multi-source converging beams) plan, including dose volume histograms for target and critical structure tolerances, plan optimization performed for highly conformal distributions, plan positional accuracy and dose verification, all lesions treated, per course of treatment.

• GXXX2 Multi-source photon stereotactic radiosurgery, delivery including collimator changes and custom plugging, complete course of treatment, per lesion.

• G0174 Intensity modulated radiation therapy (IMRT) delivery to one or more treatment areas, multiple couch angles/fields/arcs custom collimated pencil-beams with treatment setup and verification images, complete course of therapy requiring more than one session, per session.

• G0178 Intensity modulated radiation therapy (IMRT) plan, including dose volume histograms for target and critical structure partial tolerances, inverse plan optimization performed for highly conformal distributions, plan positional accuracy and dose verification, per course of treatment.

We propose that HCPCS codes GXXX1, G0174, and G0178 have status indicators of S, while GXXX2 have a status indicator of T. We believe these are the correct status indicators because G0178 has a “per session” designation, while GXXX2 has a “per lesion” designation. Furthermore, it is our understanding that GXXX1 would not be billed on a “per lesion” basis as the planning process would take into account all lesions being treated and it would be extremely difficult to determine resource utilization for planning on a “per lesion” basis. Because the costs of performing GXXX1 will vary based on the number of lesions treated, payment would reflect a weighted average.

It is our understanding that single-source photon stereotactic radiosurgery (or LINAC) planning and delivery are similar to IMRT planning and delivery in terms of clinical use and resource requirements. Therefore, we propose to require coding for single-source photon stereotactic radiosurgery under HCPCS codes G0174 and G0178.

Further, we are aware that the AMA is establishing codes for IMRT planning and treatment delivery for 2002 and we propose to retire G0174 and G0178 (with the usual 90-day phase out) and recognize the applicable CPT codes when they are established in January 2002.

We believe that all activities required to perform stereotactic radiosurgery and IMRT are included in the codes described above. In order to avoid confusion and to optimize tracking of these services in terms of both utilization and cost, we propose to discontinue the use of any other radiation therapy codes for activities involved with planning and delivery of stereotactic radiosurgery and IMRT for purposes of hospital billing in OPPS. Thus, we would continue to not recognize CPT code 61793 for hospital billing purposes.

We believe the coding requirements set forth above not only simplify the reporting process for hospitals, but appropriately recognize the clinical practice and resource requirements for stereotactic radiosurgery and IMRT.

We seek comments on our proposal, including the code titles, descriptors, and coding requirements discussed above. We also request information regarding appropriate APC assignment and payment rates to inform our decision-making. In particular, we would like information regarding the costs of treatment delivery including any differences between the cost of a complete treatment in single versus multiple sessions.

We also note that several commenters requested placement of the stereotactic delivery codes in surgical APCs and we request clarification and support for these comments within the context of our coding proposal. Specifically, we are concerned that appropriate payment be made for GXXX2, which has a “per lesion” descriptor.

We believe that while the APC Panel did not make any specific recommendations regarding these codes, the concerns expressed by the Panel are addressed by our proposal.

APC 0311: Radiation Physics Services

APC 0312: Radio Element Application

APC 0313: Brachytherapy

We presented APC 0311 to the Panel because we believed our cost data for CPT codes 77336, Continuing medical physics consultation, including assessment of treatment parameters, quality assurance of dose delivery, and review of patient treatment documentation in support of the radiation oncologist, reported per week of therapy; 77370, Special medical radiation physics consultation; and 77399, Unlisted procedure, medical radiation physics, dosimetry, and treatment devices, and special services, were inaccurate. We were concerned that these procedures, particularly code 77370, were not being paid appropriately in APC 0311.

Presenters pointed out that, as with all radiation oncology services, the usual practice is to bill multiple CPT codes on the same date of service. Therefore, single claims were likely to be inaccurate bills and did not represent the true costs of the procedure. For this reason, presenters believe that using single claims to set payment rates for radiation oncology procedures was inappropriate and that we needed to develop a methodology that allowed the use of multiple claims data to set payment rates for these services.

With regard to radiation physics consultation, presenters stated that the staff costs associated with CPT code 77370 were significantly greater than the costs of CPT codes 77336 and 77399. Therefore, they recommended that CPT codes 77336 and 77399 be moved from APC 0311 to APC 0304, Level I Therapeutic Radiation Treatment Preparation, and CPT code 77370 be moved from APC 0311 to APC 0305, Level II Therapeutic Radiation Treatment Preparation. The Panel agreed with this recommendation and we propose to accept the Panel's recommendation. We also agree that we should review the use of single claims to set payment rates for radiation oncology services. We plan to present this issue again at the 2002 Panel meeting.

We presented APCs 0312 and 0313 to the Panel because commenters were concerned that the payment rates were too low for the procedures assigned to the APCs and that there were insufficient data to set payment rates for these APCs. The Panel agreed that the issue regarding the use of single claim data affected the payment rates for these services. However, there were insufficient data for the Panel to make

any recommendations regarding these APCs. The Panel did request to look at the issue of radiation oncology at its 2002 meeting.

Therefore, we are proposing to make no changes to APCs 0312 and 0313 but will address radiation oncology issues at the Panel's 2002 meeting. We note that our updated claims data show very few single claims for procedures in these APCs. However, moving any of these procedures into other radiation oncology APCs would lower their payment rates.

APC 0371: Allergy Injections

We presented this APC to the Panel because it violates the 2 times rule. The median costs for CPT codes 95115, Professional Services for allergen immunotherapy not including provision of allergenic extracts; single injection, and 95117, Professional Services for allergen immunotherapy not including provision of allergenic extracts; two or more injections, were lower than the median costs for the other services in this APC.

The Panel agreed that because codes 95115 and 95117 included administration of an injection only, the resource utilization for these services was lower than for the other services. The other services involve preparation of antigen and require more staff time and hospital resources to perform.

In order to create clinical and resource homogeneity, the Panel recommended that we create a new APC for codes 95115 and 95117 and that we leave the other services in APC 0371. We propose to accept the Panel recommendation and create a new APC 0353, Level II Allergy Injections, and revise the title of APC 0371 to Level I Allergy Injections.

Observation Services

See the discussion on observation services in section II.C.4 of this preamble for a summary of the Panel discussion and recommendations and our proposal.

Inpatient Procedure List

See the discussion of the inpatient procedures list in section II.C.5 of this preamble for a summary of the Panel discussion and recommendations and our proposal.

B. Additional APC Changes Resulting from BIPA Provisions

1. Coverage of Glaucoma Screening

Section 102 of the BIPA amended section 1861(s)(2) of the Act to provide payment for glaucoma screening for eligible Medicare beneficiaries, specifically, those with diabetes mellitus or a family history of glaucoma, and certain other individuals found to be at high risk for glaucoma as specified by our rulemaking. The implementation of this provision is discussed in detail in a separate proposed rule concerning the revisions in the physician payment policy for CY 2002.

In order to implement section 102 of BIPA, we have established two new HCPCS codes for glaucoma screening:

G0117—Glaucoma screening for high risk patients furnished by an ophthalmologist or optometrist.

G0118—Glaucoma screening for high risk patients furnished under the direct supervision of an ophthalmologist or optometrist.

We are proposing to assign the glaucoma screening codes to APC 0230, Level I Eye Tests. We further propose to instruct our fiscal intermediaries to make payment for glaucoma screening only if it is the sole ophthalmologic service for which the hospital submits a bill for a visit. That is, the services included in glaucoma screening (a dilated eye examination with an intraocular pressure measurement and direct opthalmoscopy or slit-lamp biomicroscopy) would generally be performed during the delivery of another opthalmologic service that is furnished on the same day. If the beneficiary receives only a screening service, however, we would pay for it under APC 0230.

2. APCs for Contrast Enhanced Diagnostic Procedures

Section 430 of the BIPA amended section 1833(t)(2) of the Act to require the Secretary to create additional APC groups to classify procedures that utilize contrast agents separately from those that do not, effective for items and services furnished on or after July 1, 2001. On June 1, 2001, we issued a Program Memorandum, Transmittal A-01-73, in which we made numerous coding and grouping changes to implement this provision. (This transmittal can be found at www.hcfa.gov/pubforms/transmit/AO173.pdf) We removed the radiological procedures whose descriptors included either “without contrast material” or “without contrast material followed by contrast material” from APC groups 0282, Level I, Computerized Axial Tomography; APC 0283, Level II, Computerized Axial Tomography; and APC 0284, Magnetic Resonance Imaging. As a result, APCs 0283 and 0284 now include only imaging procedures that are performed with contrast materials. Additionally, reconfigured APC 0282 no longer includes radiological procedures that use contrast agents.

Effective for items or services furnished on or after July 1, 2001, we created six new APC groups for the procedures removed from APCs 0282, 0283, and 0284, as shown below. (Effective October 1, 2001, we will eliminate APC 0338. Refer to Transmittal A-01-73 for a detailed description of this change.) For services furnished on or after July 1, 2001 and before January 1, 2002, the payment rates for the new imaging APCs are the same as those associated with the APCs from which the procedures were moved. In this proposed rule, the weights for the new APCs are recalibrated based on the data we are using to set the weights for 2002.

Table 1.—APC Groups Reconfigured to Separate Imaging Procedures That Use Contrast Material From Procedures That Do Not Use Contrast Material

APC

SI

APC title

0282

S

Miscellaneous Computerized Axial Tomography.

0283

S

Computerized Axial Tomography with Contrast.

0284

S

Magnetic Resonance Imaging and Angiography with Contrast.

0332

S

Computerized Axial Tomography w/o Contrast.

0333

S

CT Angio and Computerized Axial Tomography w/o Contrast followed by with Contrast.

0335

S

Magnetic Resonance Imaging, Temporomandibular Joint.

0336

S

Magnetic Resonance Angiography and Imaging without Contrast.

0337

S

Magnetic Resonance Imaging and Angiography w/o Contrast followed by with Contrast.

0338

S

Magnetic Resonance Angiography, Chest and Abdomen with or w/o Contrast.

The HCPCS codes that are reassigned to the new imaging APCs in this proposed rule are as follows:

APC

HCPCS

SI

Short descriptor

0282

76370

S

CAT scan for therapy guide.

76375

S

3d/holograph reconstr add-on.

76380

S

CAT scan for follow-up study.

G0131

S

Ct scan, bone density study.

G0132

S

Ct scan, bone density study.

0283

70460

S

Ct head/brain w/dye.

70481

S

Ct orbit/ear/fossa w/dye.

70487

S

Ct maxillofacial w/dye.

70491

S

Ct soft tissue neck w/dye.

71260

S

Ct thorax w/dye.

72126

S

Ct neck spine w/dye.

72129

S

Ct chest spine w/dye.

72132

S

Ct lumbar spine w/dye.

72193

S

Ct pelvis w/dye.

73201

S

Ct upper extremity w/dye.

73701

S

Ct lower extremity w/dye.

74160

S

Ct abdomen w/dye.

76355

S

CAT scan for localization.

76360

S

CAT scan for needle biopsy.

0284

70542

S

MRI orbit/face/neck w/dye.

70545

S

Mr angiography head w/dye.

70548

S

Mr angiography neck w/dye.

70552

S

MRI brain w/dye.

71551

S

MRI chest w/dye.

72142

S

MRI neck spine w/dye.

72147

S

MRI chest spine w/dye.

72149

S

MRI lumbar spine w/dye.

72196

S

MRI pelvis w/dye.

73219

S

MRI upper extremity w/dye.

73222

S

MRI joint upr extrem w/dye.

73719

S

MRI lower extremity w/dye.

73722

S

MRI joint of lwr extr w/dye.

74182

S

MRI abdomen w/dye.

75553

S

Heart MRI for morph w/dye.

C8900

S

MRA w/cont, abd.

C8903

S

MRI w/cont, breast, uni.

C8906

S

MRI w/cont, breast, bi.

C8909

S

MRA w/cont, chest.

C8912

S

MRA w/cont, lwr ext.

0332

70450

S

CAT scan of head or brain.

70480

S

Ct orbit/ear/fossa w/o dye.

70486

S

Ct maxillofacial w/o dye.

70490

S

Ct soft tissue neck w/o dye.

71250

S

Ct thorax w/o dye.

72125

S

Ct neck spine w/o dye.

72128

S

Ct chest spine w/o dye.

72131

S

Ct lumbar spine w/o dye.

72192

S

Ct pelvis w/o dye.

73200

S

Ct upper extremity w/o dye.

73700

S

Ct lower extremity w/o dye.

74150

S

Ct abdomen w/o dye.

0333

70470

S

Ct head/brain w/o&w dye.

70482

S

Ct orbit/ear/fossa w/o&w dye.

70488

S

Ct maxillofacial w/o&w dye.

70492

S

Ct sft tsue nck w/o & w/dye.

70496

S

Ct angiography, head.

70498

S

Ct angiography, neck.

71270

S

Ct thorax w/o&w dye.

71275

S

Ct angiography, chest.

72127

S

Ct neck spine w/o&w dye.

72130

S

Ct chest spine w/o&w dye.

72133

S

Ct lumbar spine w/o&w dye.

72191

S

Ct angiograph pelv w/o&w dye.

72194

S

Ct pelvis w/o&w dye.

73202

S

Ct uppr extremity w/o&w dye.

73206

S

Ct angio upr extrm w/o&w dye.

73702

S

Ct lwr extremity w/o&w dye.

73706

S

Ct angio lwr extr w/o&w dye.

74170

S

Ct abdomen w/o&w dye.

74175

S

Ct angio abdom w/o&w dye.

75635

S

Ct angio abdominal arteries.

0335

70336

S

Magnetic image, jaw joint.

75554

S

Cardiac mri/function.

75555

S

Cardiac mri/limited study.

76390

S

Mr spectroscopy.

76400

S

Magnetic image, bone marrow.

0336

70540

S

MRI orbit/face/neck w/o dye.

70544

S

Mr angiography head w/o dye.

70547

S

Mr angiography neck w/o dye.

70551

S

MRI brain w/o dye.

71550

S

MRI chest w/o dye.

72141

S

MRI neck spine w/o dye.

72146

S

MRI chest spine w/o dye.

72148

S

MRI lumbar spine w/o dye.

72195

S

MRI pelvis w/o dye.

73218

S

MRI upper extremity w/o dye.

73221

S

MRI joint upr extrem w/o dye.

73718

S

MRI lower extremity w/o dye.

73721

S

MRI joint of lwr extre w/o dye.

74181

S

MRI abdomen w/o dye.

75552

S

Heart MRI for morph w/o dye.

C8901

S

MRA w/o cont, abd.

C8904

S

MRI w/o cont, breast, uni.

C8910

S

MRA w/o cont, chest.

C8913

S

MRA w/o cont, lwr ext.

0337

70543

S

MRI orbt/fac/nck w/o&w dye.

70546

S

Mr angiograph head w/o&w dye.

70549

S

Mr angiograph neck w/o&w dye.

70553

S

MRI brain w/o&w dye.

71552

S

MRI chest w/o&w dye.

72156

S

MRI neck spine w/o&w dye.

72157

S

MRI chest spine w/o&w dye.

72158

S

MRI lumbar spine w/o&w dye.

72197

S

MRI pelvis w/o&w dye.

73220

S

MRI uppr extremity w/o&w dye.

73223

S

MRI joint upr extr w/o&w dye.

73720

S

MRI lwr extremity w/o&w dye.

73723

S

MRI joint lwr extr w/o&w dye.

74183

S

MRI abdomen w/o&w dye.

C8902

S

MRA w/o fol w/cont, abd.

C8905

S

MRI w/o fol w/cont, brst, uni.

C8908

S

MRI w/o fol w/cont, breast, bi.

C8911

S

MRA w/o fol w/cont, chest.

C8914

S

MRA w/o fol w/cont, lwr ext.

Refer to Addendum A or Addendum B for the updated weights, payment rates, national unadjusted copayment, and minimum unadjusted copayment that we are proposing for all of the procedures listed above.

C. Other Changes Affecting the APCs

1. Changes in Revenue Code Packaging

In the April 7, 2000 final rule, we described how, in calculating the per procedure and per visit costs to determine the median cost of an APC (and therefore its relative weight), we used the charges billed using the revenue codes that contained items that were integral to performing the procedure or visit (65 FR 18483). For example, in calculating the cost of a surgical procedure, we included charges for revenue codes such as operating room, treatment rooms, recovery, observation, medical and surgical supplies, pharmacy, anesthesia, casts and splints, and donor tissue, bone, and organ. For medical visit costs, we included charges for items such as medical and surgical supplies, drugs, and observation. The complete list of the revenue centers by type of APC group was printed in the April 7, 2000 rule (65 FR 18484).

In the November 13, 2000 interim final rule, we made some changes to the list of revenue codes to reflect the charges associated with implantable devices (65 FR 67806 and 67825). As we stated in that rule, charges included in revenue codes 274 (prosthetic/orthotic devices), 275 (pacemaker), and 278 (other implants) were not included in the initial APC payment rates because, before enactment of BBRA, we were proposing to pay these devices outside of the OPPS, and, after the enactment of the BBRA, it was not feasible to revise our database to include these revenue codes in developing the April 7, 2000 final rule. As discussed in the November 13, 2000 interim final rule, we were later able to incorporate these revenue codes in our database, and effective January 1, 2001, we updated the APC payment rates to reflect inclusion of this information.

We have continued to review and revise the list of revenue codes to be included in the database and we are proposing several changes to the list of revenue codes that are packaged with the costs used to calculate the proposed APC rates. Some of these changes reflect the addition of revenue codes and others are a further refinement of our methodology. The following are the specific changes we are proposing to make:

• Package additional revenue centers that may be used to bill for implantable devices (including durable medical equipment (DME) and brachytherapy seeds) with surgical procedures. These additional centers are revenue codes 280 (oncology), 289 (other oncology), 290 (DME), and 624 (investigational devices).

• Package revenue codes 280, 289, and 624 with other diagnostic and radiology services.

• Package the revenue codes for medical social services, 560 (medical social services) and 569 (other medical social services). These services are not

paid separately in the hospital outpatient setting but often constitute discharge-planning services if provided with an outpatient service.

• Package revenue code 637 (self-administered drug (insulin administered in an emergency diabetic coma)) with medical visits. Although this is a self-administrable drug, it is covered when administered as described.

• Remove revenue code 723 (circumcision) from the list of packaged revenue codes because circumcision is a payable procedure under OPPS and should not be packaged.

• Package revenue code 942 (education/training) with medical visits and the category of “All Other APC Groups.” Patient training and education are generally not paid as a separate service under Medicare, but may be included as part of an otherwise payable service such as a medical visit. We believe that training and education services generally occur as part of a medical visit or psychiatric service.

• Remove the revenue codes in the range of 890 through 899 (donor bank), as these are no longer valid revenue codes.

2. Special Revenue Code Packaging for Specific Types of Procedures

We are proposing that the same packaging used for surgical procedures be used for corneal tissue implant procedures in APC 0244, Corneal Transplant, except that organ acquisition revenue codes and the revenue codes used to bill implantable devices are not packaged with corneal implants.

There are certain other diagnostic procedures with CPT codes that are similar to surgical procedures. The cost of these procedures (HCPCS codes 92980-92996, 93501-93505, and 93510-93536) reflects both the revenue code packaging for ambulatory surgical center (ASC) and other surgery, as well as the revenue code packaging for other diagnostic services.

A complete listing of the revenue codes that we are proposing in this rule and that we used for purposes of calculating median costs of services are shown below in Table 2.

Table 2.—Packaged Services by Revenue Code

Surgery

250 PHARMACY

251 GENERIC

252 NONGENERIC

257 NONPRESCRIPTION DRUGS

258 IV SOLUTIONS

259 OTHER PHARMACY

260 IV THERAPY, GENERAL CLASS

262 IV THERAPY/PHARMACY SERVICES

263 IV THERAPY/DRUG SUPPLY/DELIVERY

264 IV THERAPY/SUPPLIES

269 OTHER IV THERAPY

270 M&S SUPPLIES

271 NONSTERILE SUPPLIES

272 STERILE SUPPLIES

274 PROSTHETIC/ORTHOTIC DEVICES

275 PACEMAKER DRUG

276 INTRAOCULAR LENS SOURCE DRUG

278 OTHER IMPLANTS

279 OTHER M&S SUPPLIES

280 ONCOLOGY

289 OTHER ONCOLOGY

290 DURABLE MEDICAL EQUIPMENT

370 ANESTHESIA

379 OTHER ANESTHESIA

390 BLOOD STORAGE AND PROCESSING

399 OTHER BLOOD STORAGE AND PROCESSING

560 MEDICAL SOCIAL SERVICES

569 OTHER MEDICAL SOCIAL SERVICES

624 INVESTIGATIONAL DEVICE (IDE)

630 DRUGS REQUIRING SPECIFIC IDENTIFICATION, GENERAL CLASS

631 SINGLE SOURCE

632 MULTIPLE

633 RESTRICTIVE PRESCRIPTION

700 CAST ROOM

709 OTHER CAST ROOM

710 RECOVERY ROOM

719 OTHER RECOVERY ROOM

720 LABOR ROOM

721 LABOR

762 OBSERVATION ROOM

810 ORGAN AQUISITION

819 OTHER ORGAN ACQUISITION

Medical Visit

250 PHARMACY

251 GENERIC

252 NONGENERIC

257 NONPRESCRIPTION DRUGS

258 IV SOLUTIONS

259 OTHER PHARMACY

270 M&S SUPPLIES

271 NONSTERILE SUPPLIES

272 STERILE SUPPLIES

279 OTHER M&S SUPPLIES

560 MEDICAL SOCIAL SERVICES

569 OTHER MEDICAL SOCIAL SERVICES

630 DRUGS REQUIRING SPECIFIC IDENTIFICATION, GENERAL CLASS

631 SINGLE SOURCE DRUG

632 MULTIPLE SOURCE DRUG

633 RESTRICTIVE PRESCRIPTION

637 SELF-ADMINISTERED DRUG (INSULIN ADMIN. IN EMERGENCY DIABETIC COMA)

700 CAST ROOM

709 OTHER CAST ROOM

762 OBSERVATION ROOM

942 EDUCATION/TRAINING

Other Diagnostic

254 PHARMACY INCIDENT TO OTHER DIAGNOSTIC

280 ONCOLOGY

289 OTHER ONCOLOGY

372 ANESTHESIA INCIDENT TO OTHER DIAGNOSTIC

560 MEDICAL SOCIAL SERVICES

569 OTHER MEDICAL SOCIAL SERVICES

622 SUPPLIES INCIDENT TO OTHER DIAGNOSTIC

624 INVESTIGATIONAL DEVICE (IDE)

710 RECOVERY ROOM

719 OTHER RECOVERY ROOM

762 OBSERVATION ROOM

Radiology

255 PHARMACY INCIDENT TO RADIOLOGY

280 ONCOLOGY

289 OTHER ONCOLOGY

371 ANESTHESIA INCIDENT TO RADIOLOGY

560 MEDICAL SOCIAL SERVICES

710 RECOVERY ROOM

719 OTHER RECOVERY ROOM

569 OTHER MEDICAL SOCIAL SERVICES

621 SUPPLIES INCIDENT TO RADIOLOGY

624 INVESTIGATIONAL DEVICE (IDE)

762 OBSERVATION ROOM

All Other APC Groups

250 PHARMACY

251 GENERIC

252 NONGENERIC

257 NONPRESCRIPTION DRUGS

258 IV SOLUTIONS

259 OTHER PHARMACY

260 IV THERAPY, GENERAL CLASS

262 IV THERAPY PHARMACY SERVICES

263 IV THERAPY/DRUG/SUPPLY/DELIVERY

264 IV THERAPY SUPPLIES

269 OTHER IV THERAPY

270 M&S SUPPLIES

271 NONSTERILE SUPPLIES

272 STERILE SUPPLIES

279 OTHER M&S SUPPLIES

560 MEDICAL SOCIAL SERVICES

569 OTHER MEDICAL SOCIAL SERVICES

630 DRUG REQUIRING SPECIFIC IDENTIFICATION, GENERAL CLASS

631 SINGLE SOURCE DRUG

632 MULTIPLE SOURCE DRUG

633 RESTRICTIVE PRESCRIPTION

762 OBSERVATION ROOM

942 EDUCATION/TRAINING

3. Limit on Variation of Costs of Services Classified Within a Group

Section 1833(t)(2) of the Act provides that the items and services within an APC group cannot be considered comparable with respect to the use of resources if the highest cost item or service within a group is more than 2 times greater than the lowest cost item or service within the same group, but the Secretary may make exceptions to this limit on the variation of costs within each group in unusual cases such as low volume items and services. No exception may be made, however, 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.

Based on the proposed APC changes discussed above in this section of this preamble and the use of more current data to calculate the median cost of procedures classified to APCs, we reviewed all the APCs to determine which of them would not meet the 2 times limit. We use the following

criteria when deciding whether to make exceptions to the 2 times rule for affected APCs:

• Resource homogeneity.

• Clinical homogeneity.

• Hospital concentration.

• Frequency of service (volume).

• Opportunity for upcoding and code fragmentation.

For a detailed discussion of these criteria, refer to the April 7, 2000 final rule (65 FR 18457).

The following list contains APCs that we propose to except from the 2 times rule based on the criteria cited above. In cases in which compliance with the 2 times rule appeared to conflict with a recommendation of the APC Advisory Panel, we generally accepted the Panel recommendation. This was because Panel recommendations were based on explicit consideration of resource use, clinical homogeneity, hospital specialization, and the quality of the data used to determine payment rates.

0001 Photochemotherapy

0041 Arthroscopy

0044 Closed Treatment Fracture/Dislocation Except Finger/Toe/Trunk

0047 Arthroplasty without Prosthesis

0058 Level I Strapping and Cast Application

0077 Level I Pulmonary Treatment

0093 Vascular Repair/Fistula Construction

0096 Noninvasive Vascular Studies

0097 Cardiac Monitoring for 30 days

0115 Cannula/Access Device Procedures

0121 Level I Tube Changes and Repositioning

0140 Esophageal Dilation without Endoscopy

0147 Level II Sigmoidoscopy

0164 Level I Urinary and Anal Procedures

0165 Level II Urinary and Anal Procedures

0182 Insertion of Penile Prosthesis

0198 Pregnancy and Neonatal Care Procedures

0203 Level V Nerve Injections

0204 Level VI Nerve Injections

0207 Level IV Nerve Injections

0213 Extended EEG Studies and Sleep Studies

0215 Level I Nerve and Muscle Tests

0231 Level II Eye Tests

0238 Level I Repair and Plastic Eye Procedures

0251 Level I ENT Procedures

0260 Level I Plain Film Except Teeth

0265 Level I Diagnostic Ultrasound Except Vascular

0279 Level I Angiography and Venography except Extremity

0285 Positron Emission Tomography (PET)

0305 Level II Therapeutic Radiation Preparation

0322 Brief Individual Psychotherapy

0345 Level I Transfusion Lab Procedures

0349 Miscellaneous Lab Procedures

0354 Administration of Influenza/Pneumonia Vaccine

0356 Level II Immunizations

0363 Otorhinolaryngologic Function Tests

0364 Level I Audiometry

0373 Neuropsychological Testing

0602 High Level Clinic Visits

0694 Level III Excision/Biopsy

0697 Level II Transesophageal Procedures

4. Observation Services

Observation services have a long intertwined clinical and payment history. For many years, beneficiaries have been placed in “observation status” in order to receive treatment or be monitored before making a decision concerning their next placement (that is, admit to the hospital or discharge to home). This occurs most frequently after surgery or a visit to the emergency department. Typically, beneficiaries placed in observation have failed to respond to initial emergency department treatment for their condition (for example, exacerbation of asthma), have symptoms placing them at significant risk for mortality (for example, chest pains with the possibility of myocardial infarction), or have received anesthesia for a surgical procedure and need to be monitored postoperatively. Clinically, most beneficiaries do not require more than 24 hours of observation before a decision concerning admission or discharge can be made. Therefore, it is rare that it is clinically justifiable to keep a patient in observation for more than 24 to 48 hours. The location where observation services are provided is facility-specific, and sometimes individual-specific. It is not uncommon for beneficiaries to be observed in the emergency department, in a designated unit near the emergency department, or in an intensive care or other unit in the facility.

After implementation of the Medicare hospital inpatient PPS in 1983, peer review organizations (PROs) began to review inpatient admissions to determine whether the admission and the length of stay were appropriate. Because “observation care” is considered to be an outpatient service, facilities began using “observation” as an administrative mechanism to care for beneficiaries who, if admitted as inpatients, might have their admission questioned by the PRO. Moreover, before the implementation of the OPPS, the payment for observation care was on a reasonable cost basis, which frequently gave hospitals a financial incentive to keep beneficiaries in “observation status” even though they were clinically being treated as inpatients. Occasionally, beneficiaries were kept in observation for days and weeks resulting in both excessive payments from the Medicare program and excessive copayments from the beneficiary. In response to this practice, Medicare revised its manuals in November 1996, limiting covered observation services to no more than 48 hours (section 456 of the Hospital Manual and section 3663 of the Intermediary Manual).

The costs for all observation services provided in the outpatient setting, even those provided in excess of 48 hours, were included in the initial APC payment rates. Currently, observation services are not paid separately, that is, they are not assigned to a separate APC. Instead, costs for observation services are packaged into payments for services with which the observation was billed in 1996. Observation was most frequently billed with emergency department visits, clinic visits, and surgical procedures. The payments for all APCs include the costs of observation to the extent that it was billed in 1996. In the 1996 data, we identified and packaged a total of $392 million from revenue codes 760, 761, 762, and 769, which represented observation services.

In the April 7, 2000 final rule (65 FR 18448), we responded to numerous comments concerning observation services. Even though commenters acknowledged that being paid separately for observation services following a surgical procedure was unnecessary, many commenters requested that we pay separately for observation services following emergency department visits. Among those commenters requesting separate payment for observation, some requested separate payment for specific medical conditions, and others requested payment for all medical conditions. Some commenters provided articles and books containing clinical research on the value and cost effectiveness of observation for certain patients. Although we did not decide to create a separate APC for observation services, we did include this topic in the agenda for our APC Panel, which met from February 27 to March 1, 2001. While individual Panel members agreed that use of observation services had been abused in the past by hospitals seeking to maximize payment, the Panel also agreed that observation services following clinic and emergency room visits should be paid separately. In addition, the Panel believed that observation following surgery should be packaged into the payment for the surgical procedure. The Panel did not dispute that the vast majority of patients are admitted to the hospital or discharged home from observation in less than 24 hours, and Panel members judged that a rule limiting separate payment to 24 hours of observation

would be reasonable. The Panel also noted that because Medicare currently allows hospitals to report observation services up to 48 hours, hospital staff and coders would have to be educated were we to change the current standard.

Since the Panel meeting, we have reviewed all comments we have received on this issue. In determining whether we should pay separately for observation services, our primary concern is to ensure that Medicare beneficiaries have access to medically necessary observation care. We also want to ensure that payment be made only for beneficiaries actually receiving observation care, and that payment be restricted to clinically appropriate observation care. We paid particular attention to the Qualcare criteria (severity of illness and intensity of service criteria used by some insurance plans to determine whether it is appropriate for a patient to receive observation care) for observation services and to those comments providing medical evidence on the value and cost effectiveness of observation care. We also carefully considered logistical and administrative issues related to delivering observation care such as whether payment for emergency services should be bundled into observation services, the potential for overuse of the services, and the need for treatment guidelines. We also considered how to most appropriately define the starting time, discharge time, and minimum length of stay for observation care.

Finally, in considering whether to make a separate payment for observation care, we had to balance the issues of access, medical necessity, potential for abuse, and need to ensure appropriate payment. As a threshold requirement for candidate medical conditions, we sought published criteria regarding the following:

• Risk stratification of patients to determine which patient sub-populations benefit from observation care.

• Which patients should be admitted to observation.

• Which patients should be discharged home from observation.

• When patients should be admitted to the hospital from observation.

• Patient management.

We found that these criteria were met for chest pain, asthma, and congestive heart failure.

The fulfillment of these criteria ensured that, for these conditions, observation care avoided significant morbidity and mortality from inappropriate discharge to home while at the same time avoiding unnecessary inpatient admissions. For example, the use of observation for selected patients with asthma and congestive heart failure can reduce the rate of return emergency visits and subsequent admission. The literature clearly shows that for these patients, observation care requires prolonged physiologic monitoring and intensive treatment to result in the beneficial outcomes.

After careful consideration, we are proposing—

• To continue to package observation services into surgical procedures; and

• To create a single APC, APC 0339, Observation, to make separate payment for observation services for three medical conditions, chest pain, asthma, and congestive heart failure, when certain criteria (as described below) are met.

We are further proposing to instruct hospitals that payment under APC 0339 for observation services would be subject to the following billing requirements and conditions:

• An emergency department visit (APC 0610, 0611, or 0612) or a clinic visit (APC 0600, 0601, or 0602) is billed in conjunction with each bill for observation services.

• Observation care is billed hourly for a minimum of 8 hours up to a maximum of 48 hours. We would not pay separately for any hours a beneficiary spends in observation over 24 hours, but all costs beyond 24 hours would be packaged into the APC payment for observation services.

• Observation time begins at the clock time appearing on the nurse's observation admission note. (We note that this coincides with the initiation of observation care or with the time of the patient's arrival in the observation unit.)

• Observation time ends at the clock time documented in the physician's discharge orders, or, in the absence of such a documented time, the clock time when the nurse or other appropriate person signs off on the physician's discharge order. (This time coincides with the end of the patient's period of monitoring or treatment in observation.)

• The beneficiary is under the care of a physician during the period of observation, as documented in the medical record by admission, discharge, and other appropriate progress notes, timed, written, and signed by the physician.

• The medical record includes documentation that the physician used risk stratification criteria to determine that the beneficiary would benefit from observation care. (These criteria may be either published generally accepted medical standards or established hospital-specific standards.)

• The hospital furnishes certain other diagnostic services along with observation services to ensure that separate payment is made only for those beneficiaries truly requiring observation care. We believe that these tests are typically performed on beneficiaries requiring observation care for the three specified conditions and they are medically necessary to determine whether a beneficiary will benefit from being admitted to observation care and the appropriate disposition of a patient in observation care. The diagnostic tests are as follows:

• For chest pain, at least two sets of cardiac enzymes and two sequential electrocardiograms.

• For asthma, a peak expiratory flow rate (PEFR) (CPT code 94010) and nebulizer treatments.

• For congestive heart failure, a chest x-ray, an electrocardiogram, and pulse oximetry.

We are proposing to make payment for APC 0339 only if the tests described above are billed on the same claim as the observation service.

(We are not proposing to require telemetry and other ongoing monitoring services as criteria to make separate payment for observation services. Although these services are often medically necessary to ensure prompt diagnosis of cardiac arrhythmias and other disorders, we do not believe they are necessary to support separate payment for observation services.)

We propose to require that, in order to receive payment for APC 0339, the hospital must include one of the ICD-9-CM diagnosis codes listed below in the diagnosis field of the bill. We propose the following diagnosis codes to indicate a symptom or condition that would require observation:

For Chest Pain

411.1 Intermediate coronary syndrome

411.81 Coronary occlusion without myocardial infarction

411.0 Postmyocardial infarction syndrome

411.89 Other acute ischemic heart disease

413.0 Angina decubitus

413.1 Prinzmetal angina

413.9 Other and unspecified angina pectoris

786.05 Shortness of breath

786.50 Chest pain, unspecified

786.51 Precordial pain

786.52 Painful respiration

786.59 Other chest pain

For Asthma

493.01 Extrinsic asthma with status asthmaticus

493.02 Extrinsic asthma with acute exacerbation

493.11 Intrinsic asthma with status asthmaticus

493.12 Intrinsic asthma with acute exacerbation

493.21 Chronic obstructive asthma with status asthmaticus

493.22 Chronic obstructive asthma with acute exacerbation

493.91 Asthma, unspecified with status asthmaticus

493.92 Asthma, unspecified with acute exacerbation

For Congestive Heart Failure

428.0 Congestive heart failure

428.1 Left heart failure

428.9 Heart failure, unspecified

We used the following process to identify the appropriate median cost for APC 0339. First, we identified in the 1999-2000 claims data all hospital outpatient claims for observation using revenue codes 760, 761, 762, and 769. We then selected the subset of these claims that were billed for patients with chest pain, asthma, and congestive heart failure. Because no standard method for coding these claims was in place in 1996, we identified all diagnosis codes that could reasonably have been used to classify beneficiaries as having chest pain, asthma, and congestive heart failure. We then verified that these beneficiaries received appropriate observation care for chest pain, asthma, or congestive heart failure by identifying the claims in which one or more of the tests identified above were performed. The median costs of these claims were used to establish the median costs of APC 0339.

We appreciate that there are other medical conditions for which selected beneficiaries may benefit from observation care and we are interested in comments on whether we should make separate payment for observation care for other conditions. We will consider medical research submitted to support the benefits of observation services for these conditions. This information will assist us in determining whether these other conditions meet the criteria we used to select the three conditions we have proposed to include in APC 0339.

5. List of Procedures That Will Be Paid Only as Inpatient Procedures

Before implementation of the OPPS, Medicare paid reasonable costs for services provided in the outpatient department. The claims submitted were subject to medical review by the fiscal intermediaries to determine the appropriateness of providing certain services in the outpatient setting. We did not specify in regulations those services that were appropriate to provide only in the inpatient setting and that, therefore, should be payable only when provided in that setting.

Section 1833(t)(1)(B)(i) of the Social Security Act gave the Secretary broad authority to determine the services to be covered and paid for under the OPPS. In the September 8, 1998 OPPS proposed rule, we defined a set of services that are typically provided only in an inpatient setting and, hence, would not be paid by Medicare under the OPPS. This set of services is referred to as the “inpatient list.”

We received numerous comments on the inpatient list. In the April 7, 2000 final rule, we revised the proposed list by removing a number of services and we discussed in greater detail the criteria we will use to define which services will be included on the inpatient list (65 FR 18455). These are services that require inpatient care because of the invasive nature of the procedure, the need for at least 24 hours of postoperative recovery time or monitoring before the patient can be safely discharged, or the underlying physical condition of the patient.

After publication of the April 7 final rule, we received information from a number of groups demonstrating that certain services are routinely provided safely in the outpatient setting. As a result, in the November 13, 2000 interim final rule, we removed 44 procedures from the list (65 FR 67826). In that rule, we also stated that we would update the list at least quarterly to reflect advances in medical practice that permit procedures to be routinely performed in the outpatient setting. And, on June 1, 2001, we issued Program Memorandum A-01-73 in which we moved an additional 23 procedures from the inpatient list.

At its February 2001 meeting, the APC Advisory Panel discussed the existence of the inpatient list. The Advisory Panel generally favored its elimination. In this instance, we disagree with the position taken by the Panel. Rather, we propose to continue the current policy of reviewing the HCPCS codes on the inpatient list and eliminating procedures from the list if they can be appropriately performed on the Medicare population in the outpatient setting. Our medical and policy staff, supplemented as appropriate by the APC Advisory Panel, would review comments submitted by the public and consider advances in medical practice in making decisions to remove codes from the list. We would continue to use the following criteria, which we discussed in the April 7, 2000 final rule, when deciding to remove codes from the list:

• Most outpatient departments are equipped to provide the services to the Medicare population.

• The simplest procedure described by the code may be performed in most outpatient departments.

• The procedure is related to codes we have already moved off the inpatient list (for example, the radiologic part of an interventional cardiology procedure).

We would continue to update the list in response to comments as often as quarterly through program memoranda to reflect current advances in medical practice. We believe that the current list addresses the concerns of previous commenters and reflects a general consensus about those services that hospitals and physicians agree are not routinely performed in the outpatient setting. Therefore, at this time, we are proposing no further changes to the inpatient list, which is set forth in Addendum E to this proposed rule.

6. Additional New Technology APC Groups

In the April 7, 2000 final rule, we created 15 new technology APC groups to pay for new technologies that do not meet the statutory requirements for transitional pass-through payments and for which we have little or no data upon which to base assignment to an appropriate APC. APC groups 0970 through 0984 are the current new technology APCs. We currently assign services to a new technology APC for 2 to 3 years based solely on costs, without regard to clinical factors. This method of paying for new technologies allows us to gather data on their use for subsequent assignment to a clinically-based APC. Payment rates for the new technology APCs are based on the midpoint of ranges of possible costs.

After evaluating the costs of services in the new technology APCs, we are proposing that APC 0982, which covers a range of costs from $2500 to $3500, be split into two APCs, as follows: APC 0982, which would encompass services whose costs fall between $2500 and $3000, and APC 0983, which would encompass those services whose costs fall between $3000 and $3500. APC 0984 would then encompass services whose costs fall between $3500 and $5000 and we would create a new APC, 0985, for services whose costs fall between $5000 and $6000. We believe that subdividing the current range of costs within APC 0982 would allow us to pay more accurately for the services in that cost range.

In section VI.G of this preamble, we describe several modifications and refinements to the criteria and process

for assigning services to new technology APCs that we are proposing in this rule.

Table 3 below, lists all of the APC groups that we are proposing to change for 2002.

Table 3.—APC Groups Proposed To Be Changed in 2002

APC

Title

SI

APC panel

2 times

Other

0002

Fine needle Biopsy/Aspiration

T

X

0004

Level I Needle Biopsy/Aspiration Except Bone Marrow

T

X

0006

Level I Incision & Drainage

T

X

0007

Level II Incision & Drainage

T

X

0008

Level III Incision & Drainage

T

X

0012

Level I Debridement & Destruction

T

X

0013

Level II Debridement & Destruction

T

X

0014

Level III Debridement and Destruction

T

X

0015

Level IV Debridement & Destruction

T

X

0016

Level V Debridement & Destruction

T

X

X

0017

Level VI Debridement & Destruction

T

X

X

0018

Biopsy of Skin/Puncture of Lesion

T

X

0019

Level I Excision/Biopsy

T

X

0020

Level II Excision/Biopsy

T

X

0021

Level IV Excision/Biopsy

T

X

0022

Level V Excision/Biopsy

T

X

0026

Level III Skin Repair

T

X

0027

Level IV Skin Repair

T

X

0029

Level II Incision/Excision Breast

T

X

0030

Level I Breast Reconstruction

T

X

0032

Insertion of Central Venous/Arterial Catheter

T

X

0035

Placement of Arterial/Central Venous Catheter

T

X

0043

Closed Treatment Fracture Finger/Toe/Trunk

T

X

0044

Closed Treatment Fracture/Dislocation except Finger/Toe/Trunk

T

X

0045

Bone/Joint Manipulation Under Anesthesia

T

X

0049

Level I Musculoskeletal Procedures Except Hand and Foot

T

X

0050

Level II Musculoskeletal Procedures Except Hand and Foot

T

X

0058

Level I Strapping and Cast Application

S

X

0059

Level II Strapping and Cast Application

S

X

0068

CPAP Initiation

S

X

0069

Thoracoscopy

T

X

0074

Level IV Endoscopy Upper Airway

T

X

0075

Level V Endoscopy Upper Airway

T

X

0076

Endoscopy Lower Airway

T

X

0079

Ventilation Initiation and Management

S

X

0082

Coronary Atherectomy

T

X

0083

Coronary Angioplasty

T

X

0087

Cardiac Electrophysiologic Recording/Mapping

S

X

0088

Thrombectomy

T

X

0093

Vascular Repair/Fistula Construction

T

X

0094

Resuscitation and Cardioversion

S

X

0097

Cardiac Monitoring for 30 days

T

X

0102

Electronic Analysis of Pacemakers/other Devices

S

X

0105

Revision/Removal of Pacemakers, AICD, or Vascular Device

T

X

0111

Blood Product Exchange

S

X

0112

Apheresis, Photopheresis, and Plasmapheresis

S

X

0115

Cannula/Access Device Procedures

T

X

0125

Refilling of Infusion Pump

T

X

0130

Level I Laparoscopy

T

X

0131

Level II Laparoscopy

T

X

0148

Level I Anal/Rectal Procedure

T

X

0149

Level III Anal/Rectal Procedure

T

X

0150

Level IV Anal/Rectal Procedure

T

X

0155

Level II Anal/Rectal Procedure

T

X

0156

Level II Urinary and Anal Procedures

T

X

0160

Level I Cystourethroscopy and other Genitourinary Procedures

T

X

0161

Level II Cystourethroscopy and other Genitourinary Procedures

T

X

0162

Level III Cystourethroscopy and other Genitourinary Procedures

T

X

0163

Level IV Cystourethroscopy and other Genitourinary Procedures

T

X

0164

Level I Urinary and Anal Procedures

T

X

0165

Level III Urinary and Anal Procedures

T

X

0188

Level II Female Reproductive Proc

T

X

X

0189

Level III Female Reproductive Proc

T

X

X

0191

Level I Female Reproductive Proc

T

X

X

0192

Level IV Female Reproductive Proc

T

X

X

0193

Level V Female Reproductive Proc

T

X

X

0194

Level VI Female Reproductive Proc

T

X

X

0195

Level VII Female Reproductive Proc

T

X

X

0196

Dilation and Curettage

T

X

0203

Level V Nerve Injections

T

X

0204

Level VI Nerve Injections

T

X

0206

Level III Nerve Injections

T

X

0207

Level IV Nerve Injections

T

X

0208

Laminotomies and Laminectomies

T

X

0209

Level II Extended EEG Studies and Sleep Studies

S

X

0212

Level II Nervous System Injections

T

X

0213

Level I Extended EEG Studies and Sleep Studies

S

X

0215

Level I Nerve and Muscle Tests

S

X

X

0216

Level III Nerve and Muscle Tests

S

X

X

0217

Level III Nerve and Muscle Tests

S

X

0218

Level II Nerve and Muscle Tests

S

X

0230

Level I Eye Tests & Treatments

S

X

X

0231

Level III Eye Tests & Treatments

S

X

0232

Level I Anterior Segment Eye

S

X

0233

Level II Anterior Segment Eye

T

X

0234

Level III Anterior Segment Eye Procedures

T

X

0235

Level I Posterior Segment Eye Procedures

T

X

0236

Level II Posterior Segment Eye Procedures

T

X

0237

Level III Posterior Segment Eye Procedures

T

X

0238

Level I Repair and Plastic Eye Procedures

T

X

0239

Level II Repair and Plastic Eye Procedures

T

X

0245

Level I Cataract Procedures without IOL Insert

T

X

0249

Level II Cataract Procedures without IOL Insert

T

X

0251

Level I ENT Procedures

T

X

0252

Level II ENT Procedures

T

X

0253

Level III ENT Procedures

T

X

0254

Level IV ENT Procedures

T

X

0256

Level V ENT Procedures

T

X

0259

Level VI ENT Procedures

T

X

0260

Level I Plain Film Except Teeth

X

X

0261

Level II Plain Film Except Teeth Including Bone Density Measurement

X

X

0263

Level I Miscellaneous Radiology Procedures

X

X

0264

Level II Miscellaneous Radiology Procedures

X

X

0265

Level I Diagnostic Ultrasound Except Vascular

X

X

0266

Level II Diagnostic Ultrasound Except Vascular

S

X

0269

Level I Echocardiogram Except Transesophageal

S

X

0271

Mammography

S

X

0272

Level I Fluoroscopy

X

X

0279

Level I Angiography and Venography except Extremity

S

X

0280

Level II Angiography and Venography

S

X

0282

Miscellaneous Computerized Axial Tomography

S

X

X

0283

Computerized Axial Tomography with Contrast

S

X

0284

Magnetic Resonance Imaging and Angiography with Contrast

S

X

0287

Complex Venography

S

X

0288

CT, Bone Density

S

X

0289

Needle Localization for Breast Biopsy

X

X

0291

Level I Diagnostic Nuclear Medicine Excluding Myocardial Scans

S

X

0292

Level II Diagnostic Nuclear Medicine Excluding Myocardial Scans

S

X

0300

Level I Radiation Therapy

S

X

0301

Level II Radiation Therapy

S

X

0302

Level III Radiation Therapy

S

X

0304

Level I Therapeutic Radiation Treatment Preparation

X

X

0305

Level II Therapeutic Radiation Treatment Preparation

X

X

0312

Radioelement Applications

S

X

0332

Computerized Axial Tomography w/o Contrast

S

X

X

0333

CT Angio and Computerized Axial Tomography w/o Contrast followed by with Contrast

S

X

X

0335

Magnetic Resonance Imaging, Temporomandular Joint

S

X

0336

Magnetic Resonance Angiography and Imaging without Contrast

S

X

X

0337

Magnetic Resonance Imaging and Angiography w/o Contrast followed by with Contrast

S

X

0338

Magnetic Resonance Angiography, Chest and Abdomen with or w/o Contrast

S

X

0339

Observation

X

X

0340

Minor Ancillary Procedures

X

X

0345

Level I Transfusion Laboratory Procedures

X

X

0346

Level II Transfusion Laboratory Procedures

X

X

0347

Level III Transfusion Laboratory Procedures

X

X

0352

Level II Injections

X

X

0353

Level II Allergy Injections

X

X

0355

Level I Immunizations

K

X

0356

Level II Immunizations

K

X

0359

Level I Injections

K

X

0360

Level I Alimentary Tests

X

X

0361

Level II Alimentary Tests

X

X

0364

Level I Audiometry

X

X

0365

Level II Audiometry

X

X

0367

Level I Pulmonary Test

X

X

0368

Level II Pulmonary Tests

X

X

0369

Level III Pulmonary Tests

X

X

0371

Level I Allergy Injections

X

X

0689

Electronic Analysis of Cardioverter-Defibrillators

S

X

0690

Electronic Analysis of Pacemakers and other Cardiac Devices

S

X

0691

Electronic Analysis of Programmable Shunts/Pumps

S

X

0692

Electronic Analysis of Neurostimulator Pulse Generators

S

X

0693

Level II Breast Reconstruction

T

X

0694

Level III Excision/Biopsy

T

X

0695

Level VII Debridement & Destruction

T

X

0696

Repair/Replacement of Cardioverter-Defibrillators

T

X

0697

Level II Echocardiogram Except Transesophageal

S

X

0698

Level II Eye Tests & Treatments

S

X

0699

Level IV Eye Tests & Treatment

T

X

0982

New Technology—Level XII ($2500-3000)

T

X

0983

New Technology—Level XIV ($3000-3500)

T

X

0984

New Technology—Level XV ($3500-5000)

T

X

0985

New Technology—Level XVI ($5000-6000)

T

X

D. Recalibration of APC Weights for CY 2002

Section 1833(t)(9)(A) of the Act requires that the Secretary review and revise the relative payment weights for APCs at least annually beginning in 2001 for application in 2002. In the April 7, 2000 final rule (65 FR 18482), we explained in detail how we calculated the relative payment weights that were implemented on August 1, 2000 for each APC group. Except for some reweighting due to APC changes, these relative weights continued to be in effect for 2001. (See the November 13, 2000 interim final rule (65 FR 67824-67827).)

To recalibrate the relative APC weights for services furnished on or after January 1, 2002 and before January 1, 2003, we are proposing to use the same basic methodology that we described in the April 7, 2000 final rule to recalibrate the relative weights for 2002. That is, we would recalibrate the weights based on claims and cost report data for outpatient services. We propose to use the most recent available data to construct the database for calculating APC group weights. For the purpose of recalibrating APC relative weights for 2002, the most recent available claims data are the approximately 98 million final action claims for hospital outpatient department services furnished on or after July 1, 1999 and before July 1, 2000. We matched these claims to the most recent cost report filed by the individual hospitals represented in our claims data. The APC relative weights would continue to be based on the median hospital costs for services in the APC groups.

The methodology we followed to calculate the APC relative weights proposed for CY 2002 is as follows:

• We excluded from the data approximately 15.4 million claims for those bill and claim types that would not be paid under the OPPS (for example, bill type 72X for dialysis services for patients with ESRD).

• Using the most recent available cost report from each hospital, we converted billed charges to costs and aggregated them to the procedure or visit level first by identifying the cost-to-charge ratio specific to each hospital's cost centers (“cost center specific cost-to-charge ratios” or CCRs) and then by matching the CCRs to revenue centers used on the hospital's 1999-2000 outpatient bills. The CCRs included operating and capital costs but excluded costs paid on a reasonable cost basis that are described elsewhere of this preamble.

• We eliminated from the hospital CCR data 283 hospitals that we identified as having reported charges on their cost reports that were not actual charges (for example, they make uniform charges for all services).

• We calculated the geometric mean of the total operating CCRs of hospitals remaining in the CCR data. We removed from the CCR data 67 hospitals whose total operating CCR exceeded the geometric mean by more than 3 standard deviations.

• We excluded from our data approximately 1.8 million claims from the hospitals that we removed or trimmed from the hospital CCR data.

• We matched revenue centers from the remaining universe of approximately 80.8 million claims to CCRs of 5,653 hospitals.

• We separated the 80.8 million claims that we had matched with a cost report into two distinct groups: single-procedure claims and multiple-procedure claims. Single-procedure claims were those that included only one HCPCS code (other than laboratory and incidentals such as packaged drugs and venipuncture) that could be grouped to an APC. Multiple-procedure claims included more than one HCPCS code that could be mapped to an APC. There were approximately 36.4 million single-procedure claims and 44.4 million multiple-procedure claims.

• To calculate median costs for services within an APC, we used only single-procedure bills. We did not use multiple-procedure claims because we are not able to specifically allocate charges or costs for packaged items and services such as anesthesia, recovery room, drugs, or supplies to a particular procedure when more than one significant procedure or medical visit is billed on a claim. Use of the single-procedure bills minimizes the risk of improperly assigning costs to the wrong procedure or visit.

• For each single-procedure claim, we calculated a cost for every billed line item charge by multiplying each

revenue center charge by the appropriate hospital-specific CCR. If the appropriate cost center did not exist for a given hospital, we crosswalked the revenue center to a secondary cost center when possible, or to the hospital's overall cost-to-charge ratio for outpatient department services. We excluded from this calculation all charges associated with HCPCS codes previously defined as not paid under the OPPS (for example, laboratory, ambulance, and therapy services).

• To calculate the per-service costs, we used the charges shown in the revenue centers that contained items integral to performing the service. These included those items that we previously discussed as being subject to our proposed packaging provision. For instance, in calculating the surgical procedure cost, we included charges for the operating room, treatment rooms, recovery, observation, medical and surgical supplies, pharmacy, anesthesia, casts and splints, and donor tissue, bone, and organ. For medical visit cost estimates, we included charges for items such as medical and surgical supplies, drugs, and observation in those instances where it is still packaged. See sections II.C.1 and II.C.2 of this preamble for a discussion and complete listing of the revenue centers that we are proposing to use to calculate per-service costs.

• We standardized costs for geographic wage variation by dividing the labor-related portion of the operating and capital costs for each billed item by the current FY 2001 hospital inpatient prospective payment system wage index published in the

Federal Register

on August 1, 2000 (65 FR 47054). We used 60 percent to represent our estimate of that portion of costs attributable, on average, to labor. A more detailed discussion of wage index adjustments is found in section III of this preamble.

• We summed the standardized labor-related cost and the nonlabor-related cost component for each billed item to derive the total standardized cost for each procedure or medical visit.

• We removed extremely unusual costs that appeared to be errors in the data using a trimming methodology analogous to what we use in calculating the DRG weights for the hospital inpatient PPS. That is, we eliminated any bills with costs outside of 3 standard deviations from the geometric mean.

• After trimming the procedure and visit level costs, we mapped each procedure or visit cost to its assigned APC, including, to the extent possible, the proposed APC changes described elsewhere in this preamble.

• We calculated the median cost, weighted by procedure volume, for each APC.

• Using the weighted median APC costs, we calculated the relative payment weights for each APC. We scaled all the relative payment weights to APC 0601, Mid-level clinic visit, because it is one of the most frequently performed services in the hospital outpatient setting. This approach is consistent with that used in developing relative value units for the Medicare physician fee schedule. 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. The median cost for APC 0601 is $54.00.

Section 1833(t)(9)(B) of the Act requires that APC reclassification and recalibration changes and wage index changes be made in a manner that assures that aggregate payments under the OPPS for 2002 are neither greater than nor less than the aggregate payments that would have been made without the changes. To comply with this requirement concerning the APC changes, we compared aggregate payments using the CY 2001 relative weights to aggregate payments using the CY 2002 proposed weights. Based on this comparison, we are proposing to make an adjustment of 1.022 to the weights. The weights that we are proposing for 2002, which incorporate the recalibration adjustments explained in this section, are listed in Addendum A and Addendum B.

III. Wage Index Changes

Under section 1833(t)(2)(D) of the Act, we are required to determine a wage adjustment factor to adjust for geographic wage differences, in a budget neutral manner, that portion of the OPPS payment rate and copayment amount that is attributable to labor and labor-related costs.

We used the proposed Federal fiscal year (FY) 2002 hospital inpatient PPS wage index to make wage adjustments in determining the proposed payment rates set forth in this proposed rule. The proposed FY 2002 hospital inpatient wage index published in the May 4, 2001

Federal Register

(66 FR 22821) is reprinted in this proposed rule as Addendum H, Wage Index for Urban Areas; Addendum I, Wage Index for Rural Areas; and Addendum J, Wage Index for Hospitals That Are Reclassified. We propose to use the final FY 2002 hospital inpatient wage index to calculate the payment rates and coinsurance amounts that we will publish in the final rule implementing the OPPS for calendar year (CY) 2002.

IV. Copayment Changes

We note that in section 1833(t) of the Act, the terms “copayment” and “coinsurance” appear to be used interchangeably. To be consistent with CMS usage, we make a distinction between the two terms throughout this preamble. We propose to make conforming changes to part 419 of the regulations to reflect the following usage:

• “Coinsurance” means the percent of the Medicare-approved amount that beneficiaries pay for a service furnished in the hospital outpatient department (after they meet the Part B deductible).

• “Copayment” means the set dollar amount that beneficiaries pay under the OPPS. For example, if the payment rate for an APC is $200 and the beneficiary is responsible for paying $50, the copayment is $50 and the coinsurance is 25 percent.

A. BIPA 2000 Coinsurance Limit

As discussed in section I.C of this preamble, certain provisions of BIPA 2000 affect beneficiary copayment amounts under the OPPS. Section 111 of the BIPA added section 1833(t)(8)(C)(ii) of the Act, to accelerate the reduction of beneficiary copayment amounts, providing that, for services furnished on or after April 1, 2001 and before January 1, 2002, the national unadjusted coinsurance for an APC cannot exceed 57 percent of the APC payment rate. The statute provides for further reductions in future years so that the national unadjusted coinsurance for an APC cannot exceed 55 percent in 2002 and 2003, 50 percent in 2004, 45 percent in 2005, and 40 percent in 2006 and thereafter.

We implemented the reduction in beneficiary copayments for 2001 effective April 1, 2001 through changes to the OPPS PRICER software used to calculate OPPS payments to hospitals from the Medicare Program and beneficiary copayments.

We would revise § 419.41 to conform the regulations text to this provision.

B. Impact of BIPA 2000 Payment Rate Increase on Coinsurance

Under the statute as enacted by BBA 1997, APC payment rates for 2001 were to be based on the payment rates for 2000 increased by the inpatient hospital market basket percentage increase minus 1 percentage point; however, section 401 of the BIPA 2000 increased APC payment rates for 2001 to reflect an update based on the full market basket

percentage increase. The Congress intended for the increased payment to be in effect for the entire calendar year 2001; however, to provide us sufficient time to make the change, the Congress adopted a special payment rule for 2001. Under section 401(c) of the BIPA, the payment rates in effect for services furnished on or after January 1, 2001 and before April 1, 2001 are the rates as determined under the statute prior to the enactment of BIPA. For services furnished on or after April 1, 2001 and before January 1, 2002 the payment rates reflect the full market basket update and are further increased by 0.32 percent to account for the timing delay in implementing the full market basket update for 2001. The 0.32 percent increase is a temporary increase that applies only to the period April 1 through December 31, 2001 and is not considered in updating the OPPS conversion factor for 2002. The increase in APC payment rates for 2001 was implemented effective April 1, 2001 through changes to the OPPS PRICER software. We would revise § 419.32 to conform to the statute.

The section 401 increase to the APC payment rates affected beneficiary copayments in several ways. In cases for which th

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