Medicare Program; Changes to the Hospital Outpatient Prospective Payment System and Calendar Year 2003 Payment Rates; and Changes to Payment Suspension for Unfiled Cost Reports

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 410 and 419

[CMS-1206-P]

RIN 0938-AL19

Medicare Program; Changes to the Hospital Outpatient Prospective Payment System and Calendar Year 2003 Payment Rates; and Changes to Payment Suspension for Unfiled Cost Reports

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 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, 2003. In addition, this rule proposes to allow the Secretary to suspend Medicare payments “in whole or in part” if a provider fails to file a timely and acceptable cost report.

DATES:

We will consider comments if we receive them at the appropriate address, as provided below, no later than 5 p.m. on October 8, 2002.

ADDRESSES:

In commenting, please refer to file code CMS-1206-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission. Mail written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1206-P, P.O. Box 8018, Baltimore, MD 21244-8018.

Please allow sufficient time for mailed comments to be timely received in the event of delivery delays.

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

Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201, or

Room C5-14-03, 7500 Security Boulevard, Baltimore, MD 21244-1850.

(Because access to the interior of the HHH Building is not readily available to persons without Federal Government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.)

Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and could be considered late.

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

SUPPLEMENTARY INFORMATION

section.

FOR FURTHER INFORMATION CONTACT:

Anita Heygster, (410) 786-0378—outpatient prospective payment issues; Lana Price, (410) 786-4533—partial hospitalization and ESRD; Gerald Walters, (410) 786-2070—payment suspension 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 Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, call (410) 786-7197.

Availability of Copies and Electronic Access

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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

Comparison of Proposed 2003 Payment Rates to 2002 Payment Rates

I. Background

A. Authority for the Outpatient Prospective Payment System

B. Summary of Rulemaking for the Outpatient Prospective Payment System

C. Authority for Payment Suspension for Unfiled Cost Reports

D. Summary of Payment Suspension for Unfiled Cost Reports

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. General Issues Considered by the Advisory Panel

3. Recommendations of the Advisory Panel and Our Responses

B. Other Changes Affecting the APCs

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

2. Procedures Moved from New Technology APCs to Clinically Appropriate APCs

3. APC Assignment for New Codes Created During 2002

4. Recalibration of Weights for 2003

a. Data Issues

(1) Treatment of “Multiple Procedure” Claims

(2) Calendar Year 2002 Charge Data for Pass-Through Device Categories

b. Description of How Weights Were Calculated for 2003

5. Procedures That Will Be Paid Only As Inpatient Procedures

C. Partial Hospitalization

III. Transitional Pass-Through and Related Payment Issues

A. Background

B. Discussion of Pro Rata Reduction

C. Expiration of Transitional Pass-Through Payments in Calendar Year 2003

1. Devices

2. Drugs and Biologicals (Including Radiopharmaceuticals, Blood, and Blood Products)

3. Brachytherapy

D. Criteria for New Device Categories

E. Payment for Transitional Pass-Through Drugs and Biologicals for Calendar Year 2003

IV. Wage Index Changes for Calendar Year 2003

V. Copayment for Calendar Year 2003

VI. Conversion Factor Update for Calendar Year 2003

VII. Outlier Policy for Calendar Year 2003

VIII. Other Policy Decisions and Proposed Changes

A. Hospital Coding for Evaluation and Management (E/M) Services

B. Observation Services

C. Payment Policy When A Surgical Procedure on the Inpatient List Is Performed on an Emergency Basis

1. Current Policy

2. Hospital Concerns

3. Clarification of Payment Policy

4. Orders to Admit

D. Status Indicators

E. Other Policy Issues Relating to Pass-Through Device Categories

1. Reducing Transitional Pass-Through Payments To Offset Costs Packaged Into APC Groups

2. Devices Paid With Multiple Procedures

F. Outpatient Billing for Dialysis

IX. Summary of and Responses to MedPAC Recommendations

X. Summary of Proposed Changes for 2003

A. Changes Required by Statute

B. Additional Changes to OPPS and Payment Suspension Provisons

C. Changes to the Regulations Text

XI. Summary of Proposed Payment Suspension Provisions

XII. Collection of Information Requirements

XIII. Response to Public Comments

XIV. Regulatory Impact Analysis

A. OPPS

1. General

2. Changes in this Proposed Rule

3. Limitations of Our Analysis

4. Estimated Impacts of this Proposed Rule

5. Projected Distribution of Outlier Payments

B. Payment Suspension for Unfiled Cost Reports 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 That Would Be Paid Only As Inpatient Procedures

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

ACEP American College of Emergency Physicians

AMA American Medical Association

APC Ambulatory payment classification

AWP Average wholesale price

BBA Balanced Budget Act of 1997

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

BBRA Balanced Budget Refinement Act of 1999

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)

CPT (Physician's) Current Procedural Terminology, Fourth Edition, 2002, copyrighted by the American Medical Association

CSW Clinical social worker

CY Calendar year

DRG Diagnosis-related group

DSH Disproportionate Share Hospital

EACH Essential Access Community Hospital

E/M Evaluation and management

ERCP Endoscopic retrograde cholangiopancreatography

ESRD End-stage renal disease

FACA Federal Advisory Committee Act

FY Federal fiscal year

HCPCS Healthcare Common Procedure Coding System

HIPAA Health Insurance Portability and Accountability Act of 1996

ICU Intensive care unit

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

IME Indirect Medical Education

IPPS (Hospital) inpatient prospective payment system

LTC Long Term Care

MedPAC Medicare Payment Advisory Commission

MDH Medicare Dependent Hospital

MSA Metropolitan statistical area

NECMA New England County Metropolitan Area

OCE Outpatient code editor

OMB Office of Management and Budget

OPD (Hospital) outpatient department

OPPS (Hospital) outpatient prospective payment system

OT Occupational therapist

PHP Partial hospitalization program

PPS Prospective payment system

PPV Pneumococcal pneumonia (virus)

PRA Paperwork Reduction Act

RFA Regulatory Flexibility Act

RRC Rural Referral Center

RVUs Relative value units

SCH Sole Community Hospital

TEFRA Tax Equity and Fiscal Responsibility Act

USPDI United States Pharmacopoeia Drug Information

Comparison of Proposed 2003 Payment Rates to 2002 Payment Rates

The outpatient pass-through provisions of the BBRA and BIPA have been exceptionally difficult to implement, arguably the most complex and difficult in the history of the Medicare program. In CY 2002, the pass-through payments, and the APC rates were calculated on the best information available. This was often manufacturer list prices, which may not reflect not actual prices paid by hospitals. For CY 2003, far more data is available on the actual charges for hospital OPDs, and these are reflected in the rates in this proposed rule. In many cases these new rates are significantly different from CY 2003 rates, but they are based on actual hospital charges, and on far more complete data than were the CY 2002 rates. Nevertheless, CMS is actively seeking comment on all aspects of these rates, given the significant changes in the proposed rule, and the agency is open to making changes, perhaps significant, in the final rule based on comments.

The 2003 payment rates proposed in this proposed rule are, for many items and services, significantly higher or lower than the payment rates for the same items and services for 2002, particularly for APCs which use medical devices, and for APCs for drugs that will no longer be eligible for pass-through status in 2003 and paid under separate APCs. Some proposed payments for 2003 are far lower than the 2002 payment amounts (and some are higher).

For example, as can be seen in Addenda A, the proposed rate for APC 0108 (Insertion/Replacement/Repair of Cardioverter-Defibrilator Leads) shows a dramatic decrease in payment compared to the 2002 rate. This reduction for a number of APCs is of concern to us because of the potential impact on access to care. We invite public comment and suggestions on how to address the potential for adverse impact of these proposed changes.

The proposed 2003 payment rates reflect the use of updated data, as required by the statute, in calculating payment rates in accordance with the methodologies set forth in the statute and regulations. The proposed payment rates reflect mathematical calculations based on the latest available program data.

Our goal in this proposed rule is to explain the methodology and to solicit comments on our rate-setting methods and the effect on beneficiary access, provider participation and the fiscal integrity of the Medicare Trust Fund.

Devices

We believe that there are several factors that may explain the differences between the proposed payment amounts for 2003 and the payment amounts for 2002 (some, but not all of which, are significant).

First, we believe that the payment rates for the device related procedures for 2002 may in some cases have been higher than they would have been had actual hospital acquisition cost data been available for us to use. Specifically, because we lacked hospitals' cost data for devices, we used the best data available to us at the time which was manufacturer data regarding the hospitals' acquisition costs in providing the devices. We assumed that a device would be provided with a related procedure and packaged 75 percent of these manufacturer estimated

costs for the devices into the APCs for the procedures.

The costs that we packaged in for some devices may have been higher than actual hospital acquisition costs. The differences between the 2002 payment rate and the lower 2003 proposed payments are based on our data sources. While the 2003 rates are based on 2001 hospital claims and the latest available cost report data, the 2002 rates are based on manufacturer data for devices. We use charges on the hospital claims data to estimate hospital costs. We apply hospital-specific, department-specific cost-to-charge ratios (CCRs) from each provider's most recently submitted cost report to the charges to develop the estimate of costs. In most cases, the provider's most recently submitted cost report is from fiscal year 1999. An adjustment factor is applied in developing CCRs for cost reports that have not yet been settled, so that the CCRs will more closely reflect CCRs from a settled cost report.

Second, there may be problems in the data, particularly for coding of devices in 2001. As discussed later in this preamble, devices were to be coded using device specific C codes from the start of the OPPS on August 1, 2000 until the law changes required that we establish category codes by April 1, 2001. We then granted a grace period until July 1, 2001, during which we accepted both device specific codes and category codes. During a Town Hall meeting with the public on April 5, 2001, and in other contacts with hospitals (such as the open forum calls and visits to hospitals) we have been told that hospitals had difficulty in submitting proper HCPCS coding for services and for devices once OPPS began and that, in many cases, they did not bill for devices for which they should have claimed payment.

In some cases, hospitals were confused by the change from device specific codes to category codes; in other cases, the use of HCPCS codes was new and they had a long learning curve to learn how to use HCPCS codes. Our initial data analysis suggested that hospitals may not have billed for the devices using the device or category codes in all cases. If the charges were not on the claim, they would not have been picked up for calculation of the median cost for the service and the associated device, possibly resulting in a proposed payment rate for the APC that is inappropriately low and other rates that are inappropriately too high. However, based on our analysis which is described later, we believe that hospitals often showed the charges for the devices in the applicable revenue centers (such as, supplies) and that the charges for the devices often were on the claim, even if the HCPCS code was not.

We welcome public comments regarding these issues for these payment changes and proposals regarding how problems with claims data could be rectified for development of the final rule.

Drugs

As discussed later in this preamble, we propose to package the costs for lower cost drugs into the payment for the APC in which they are used and to pay specialty drugs and high cost drugs under separate APCs. Some of the APCs for separately paid drugs also show significant reductions in payments compared to the pass-through payments made in 2002. Several factors may help place these decreases in perspective.

These changes result largely because the payment method for items in transitional pass-through payment status differs significantly from other services paid under the OPPS, and as items lose transitional pass-through payment status they are subject to a different payment method. In particular, a drug in transitional pass-through payment status is paid based on 95 percent of the average wholesale price for the drug, possibly subject to a uniform reduction.

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In 2002, we apply a uniform reduction to the transitional pass-through portion of payments for drugs with transitional pass-through status. As a result, the OPPS now pays hospitals about 72 percent of AWP for drugs in this status. The uniform reduction, as discussed in the March 1, 2002 final rule, is to comply with section 1833(t)(6)(E) of the Act, which limits the total projected amount of transitional pass-through payments for 2002 to 2.5 percent of projected total payments under the OPPS in 2002.

In contrast, a drug not in transitional pass-through status is paid as are other services under the OPPS. The statute provides that services (other than transitional pass-through items) be paid on the basis of a service-specific relative weight multiplied by a conversion factor. The relative weight is determined based on the median hospital cost, where the cost on each claim is derived by multiplying the submitting hospital's charge by a cost-to-charge ratio (determined from the hospital's latest submitted cost report, usually from fiscal year 1999). We anticipate that a hospital's charges on particular services reflect, at least in relative terms, the hospital's resource use in providing that service.

Per the statute, the conversion factor was set at the initiation of the system to achieve budget neutrality relative to the prior system; it is updated each year by the rate of increase in the hospital market basket. This mechanism does reflect changes in input costs from the initial base, but the system is not rebased to reflect the absolute level of such costs.

This payment method was not intended to assure that hospitals, even on average, are reimbursed costs of particular services. In fact, because the conversion factor was calibrated to reflect prior reductions in hospital operating and capital costs that were built into the baseline for overall program expenditures, the OPPS is not set to pay full costs to hospitals.

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In fact, because of the effect of prior statutory reductions in payments, the OPPS system was calibrated at its initiation to pay only about 82 percent of hospital costs in the aggregate.

Further, nothing in the payment method prescribed by the statute requires or anticipates that hospitals would be reimbursed full costs of purchased inputs such as drugs, just as it does not anticipate that hospitals would be reimbursed for the full cost of any other services they deliver.

The payment methods are set out in section 1833(t) of the Act. This section does not permit continuation of a pass-through payment (at 95 percent of AWP or some other level) for drugs losing their transitional pass-through status. This section permits the Secretary to specify APC groupings, and we are proposing in 2003 to continue to pay separately for certain drugs that had transitional pass-through status in 2002 and that are no longer eligible for pass-through status in 2003. These drugs would be in separate APCs, rather than being packaged into other, procedure-related APCs; the payment method would be the same relative-weight payment method used for other APCs.

The resulting payment rates incorporate the best evidence we have regarding what hospitals charged in 2001. They may diverge, however, from payment rates based on the AWP, including those in use for 2002. As is discussed above, movement from pass-through payment rates to relative-weight based payment rates would be expected to lead to decreases in payments, even if AWP represented a reliable measure of hospital acquisition costs (As discussed above, we use hospital charges and hospital-specific, department-specific cost-to-charge ratios to estimate hospital costs. In most cases, cost-to-charge ratios are derived from 1999 cost reports).

However, we believe this outcome is also be due to deficiencies in AWP as a measure of hospital acquisition costs. AWP is not an accurate estimate of what

providers actually pay for drugs. Studies undertaken over the past decade by the Office of the Inspector General, the Department of Justice, and the General Accounting Office that compare AWP with actual drug acquisition costs have consistently shown that published AWPs considerably exceed these costs (See “MEDICARE Payments for Covered Outpatient Drugs Exceed Providers’ Costs”, GAO-01-1118). Therefore, it is to be expected that the proposed 2003 APC payment rates based on median hospital costs for these drugs will be lower than the 2002 payment rates for the same drugs that are based on AWP. The Administration has repeatedly stated its view that AWP inaccurately represents actual market pricing. The pass-through system pays based on AWP, creating further incentives for artificially high AWP listings. We believe the steep reductions in some drug prices reflect these incentives, and that the new rates more accurately reflect the actual acquisition costs for hospitals pay. Still, we are interested in soliciting comments on these costs, and the mechanisms to identify them.

I. Background

A. Authority for the Outpatient Prospective Payment System

When the Medicare statute was originally enacted, Medicare payment for hospital outpatient services was based on hospital-specific costs. In an effort to ensure that Medicare and its beneficiaries pay appropriately for services and to encourage more efficient delivery of care, the Congress mandated replacement of the 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 OPPS was first implemented for services furnished on or after August 1, 2000.

B. Summary of Rulemaking for the Outpatient Prospective System

• 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 18434) 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, 2000 final rule with comment period also established requirements for provider departments and provider-based entities and prohibited Medicare payment for nonphysician 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 and amended by the BBRA. Medicare regulations governing the hospital OPPS are set forth at 42 CFR part 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. We implemented the OPPS on 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 implemented the 2001 OPPS on 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.

• On November 2, 2001, we published a final rule (66 FR 55857) that announced the Medicare OPPS conversion factor for calendar year 2002. In addition, it described the Secretary's estimate of the total amount of the transitional pass-through payments for CY 2002 and the implementation of a uniform reduction in each of the pass-through payments for that year.

• On November 2, 2001, we also published an interim final rule with comment period (66 FR 55850) that set forth the criteria the Secretary will use to establish new categories of medical devices eligible for transitional pass-through payments under Medicare's OPPS.

• On November 30, 2001, we published a final rule (66 FR 59856) that revised the Medicare OPPS to implement applicable statutory requirements, including relevant provisions of BIPA, and changes resulting from continuing experience with this system. It addition, it described the CY 2002 payment rates for Medicare hospital outpatient services paid under the PPS. This final rule also announced a uniform reduction of 68.9 percent to be applied to each of the transitional pass-through payments for certain categories of medical devices and drugs and biologicals.

• On December 31, 2001, we published a final rule (66 FR 67494) that delayed, until no later than April 1, 2002, the effective date of CY 2002 payment rates and the uniform reduction of transitional pass-through payments that were announced in the November 30, 2001 final rule. In addition, this final rule indefinitely delayed certain related regulatory provisions.

• On March 1, 2002, we published a final rule (67 FR 9556) that corrected technical errors that affected the amounts and factors used to determine the payment rates for services paid under the Medicare OPPS and corrected the uniform reduction to be applied to transitional pass-through payments for CY 2002 as published in the November 30, 2001 final rule. These corrections and the regulatory provisions that had been delayed became effective on April 1, 2002.

C. Authority for Payment Suspensions for Unfiled Cost Reports

Authority for the provision regarding payment suspensions for unfiled cost reports is contained within the authority for subpart C of 42 CFR Part 405, that is, sections 1102, 1815, 1833, 1842,

1866, 1870, 1871, 1879, and 1892 of the Social Security Act (42 U.S.C. 1302, 1395g, 13951, 1395u, 1395cc, 1395gg, 1395hh, 1395pp, and 1395ccc) and 31 U.S.C. 3711.

D. Summary of Payment Suspensions for Unfiled Cost Reports

This provision is set forth in our existing regulations at 42 CFR 405.371 as follows:

Section 405.371 (a) provides that Medicare payments may be suspended, in whole or in part, following overpayments determined by the Medicare contractor when overpayment exists or when the payments to be made may not be correct.

Section 405.371(b) provides, in relevant part, that a payment suspension may proceed only after certain procedural requirements contained at § 405.372 are met.

Existing § 405.371(c) provides for suspension of payment if a provider has failed to timely file an acceptable cost report. Payment to the provider is immediately suspended until a cost report is filed and determined by the intermediary to be acceptable.

With the increased transition to the prospective payment systems, the cost report settlement process has become less determinative of an institutional provider's Medicare reimbursement. For instance, in the case of an inpatient acute care hospital, the base DRG payment (as opposed to any teaching or disproportionate share payments, or pass-through payments) is determined when a claim is initially adjudicated, and does not generally change at the time of cost report settlement. Similarly, the APC payment for an outpatient service is also based on the claim adjudication. For home health agencies, minimal changes to payment are made at the time of cost report settlement, and for skilled nursing facilities, the main cost report issues revolve around bad debt determinations. In all of these cases, a significant proportion of the institution's payments are determined based on the adjudication of claims, and do not change at the point of settling the cost report. However, the filing of cost reports remains important for settling some payments, such as medical education payments, even for providers that are fully transitioned to prospective payment systems. Also, cost reports for PPS providers are used for determining prospective payment rates for future years. For these reasons, tailored payment suspensions can still be an effective measure for ensuring that providers comply with their obligation to file timely and acceptable cost reports.

II. Proposed Changes to the Ambulatory Payment Classification (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 601, Mid-Level Clinic Visits. The APC weights are scaled to APC 601 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 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 payment 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 2003 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, requires that we consult with an outside panel of experts when annually reviewing and updating the APC groups and the relative weights. The Act 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 (Pub. L. 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, we chose 15 highly qualified individuals to serve on the Panel. The first APC Panel meeting was held on February 27, February 28, and March 1, 2001 to discuss the 2001 APCs in anticipation of the 2002 OPPS.

We published a notice in the

Federal Register

on December 14, 2001 to announce the location and time of the second 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 on our website. We convened the second meeting of the Panel on January 22 through January 24, 2002.

2. General Issues Considered by the Advisory Panel

In this section, we summarize the Panel's discussion of a recommendation by the Panel's Research Subcommittee concerning the format of written submissions and oral presentations to the Panel and of several general OPPS payment issues.

Content for Future Presentations to the Panel

During the 2001 meeting, the Panel heard many different types of oral presentations. The Panel members felt that requiring consistency for all presentations with regard to format, data submission, and general information would assist them in analyzing the submissions and presentations and making recommendations. Therefore, during the 2001 meeting, the Panel recommended the creation of a Research Subcommittee. The Research Subcommittee was established during the 2001 meeting and had regular conference calls to discuss the development and implementation of standards for written submissions and oral presentations to the Panel during its meetings. The Research Subcommittee also analyzed complex issues (such as the use of multiple procedure claims

data to set APC relative weights) that could not be addressed in the time allotted for the annual meeting.

The Panel began its 2002 meeting by considering the Research Subcommittee's recommendation to the Panel on requirements for written submissions and oral presentations. The Research Subcommittee recommended that all future oral presentations and written submissions contain the following:

• Name, address, and telephone number of the proposed presenter.

• Financial relationship(s), if any, with any company whose products, services, or procedures are under consideration.

• CPT codes involved.

• APC(s) affected.

• Description of the issue.

• Clinical description of the service under discussion, with comparison to other services within the APC.

• Description of the resource inputs associated with the service under discussion, with a comparison to resource inputs for other services within the APC.

• Recommendations and rationale for change.

• Expected outcome of change and potential consequences of no change.

The Panel adopted the Subcommittee s recommendation. Presentations for the 2003 meeting must contain, at a minimum, this information.

Inpatient Only List

At its February 2001 meeting, the Panel discussed the existence of the inpatient list. The Panel favored its elimination. At the January 2002 meeting, Panel members noted that hospitals receive no payment for a service performed in an outpatient department that appears on the inpatient list, even though the physician performing that service will receive payment for his or her services. The Panel believes the physician should determine what procedure to perform and that both the hospital and the physician should receive payment for the procedure. We continue to disagree with the position taken by the Panel regarding the inpatient list for reasons that we discuss in detail in the April 7, 2000 final rule (65 FR 18456).

Prior to the 2002 Panel meeting, we received requests from hospital and surgical associations and societies to remove certain procedures from the inpatient list. We reviewed those requests and presented to the Panel the requests for which we were unable to make a determination based on the information submitted with the request.

The Panel considered removing the following procedures from the inpatient list:

CPT

Description

21390

Treat eye socket fracture.

27216

Treat pelvic ring fracture.

27235

Treat thigh fracture.

32201

Drain, percut, lung lesion.

33967

Insert ia percut device.

47490

Incision of gallbladder.

62351

Implant spinal canal cath.

64820

Remove sympathetic nerves.

92986

Revision of aortic valve.

92987

Revision of mitral valve.

92990

Revision of pulmonary valve.

92997

Pul art balloon repr, precut.

92998

Pul art balloon repr, precut.

The Panel recommended that we solicit comments and additional information from hospitals and medical specialty societies that have an interest in these procedures. The Panel also recommended that we present to them at their 2003 meeting any such comments that we receive to assist in their evaluation of whether to recommend removing the codes from the inpatient list.

The Panel did recommend that we remove from the inpatient list CPT code 47001, Biopsy of liver, needle; when done for indicated purpose at time of other major procedure. Panel members stated that this add-on code is being billed with surgical procedures that are payable under the OPPS. The Panel noted that coding edits prevent payment for the other payable OPPS services if CPT code 47001 is on the claim. We agree with the Panel's recommendation and we propose to remove 47001 from the inpatient list. We further propose to assign it status indicator “N” so that costs associated with CPT code 47001 would be packaged into the APC payment for the primary procedure performed during the same operative session.

One presenter at the Panel meeting suggested removing CPT codes 53448, 54411, and 54417 from the inpatient list because he believed they were being performed in the outpatient setting. After discussing this suggestion, the Panel recommended that these codes remain on the inpatient list because they involve removing a prosthesis through an infected operative field and cannot be safely and effectively performed in the outpatient setting. We agree with the Panel's recommendation, and we are not proposing to remove these codes from the inpatient list.

In section II.B.5 of this preamble, below, we discuss additional procedures, which were not considered by the Panel, that we propose to remove from the inpatient list. We discuss in detail our reasons for proposing these additional changes, and we propose two new criteria that we would adopt in the future when evaluating whether to make a procedure on the inpatient list payable under the OPPS. Table 6 in section II.B.5 lists all the procedures we propose to remove from the inpatient list, including those discussed by the Panel. We are considering the removal of CPT code 33967, Insertion of intra-aortic balloon assist device, percutaneous from the inpatient list, but did not include it in Table 6. The Panel considered this code for removal from the inpatient list and had concerns about whether performing this procedure in an outpatient setting is appropriate. Further, we have not been able to confirm that this procedure is being performed on Medicare beneficiaries in an outpatient setting. We solicit comments, including clinical data and specific case reports, that would support payment for CPT 33967 under the OPPS.

Multiple Bills

During its February 2001 meeting, the Panel received oral testimony identifying CMS exclusive use of single procedure claims to set relative weights for APCs as a potential problem in setting appropriate payment rates for APCs. Therefore, the panel asked its Research Subcommittee to work with CMS staff, using the Endoscopic Retrograde Cholangiopancreatography (ERCP) code family as a case study, to explore the use of multiple procedure claims data for setting relative weights. This code family was selected because presenters had suggested that when procedures in this family are performed, it is typical to perform more than one procedure during a session.

The Subcommittee reviewed pre-OPPS claims data for these codes, paying particular attention to common code combinations and costs per procedure and per code combination. After lengthy review, the Panel concluded that (1) it could not determine whether findings based on review of pre-OPPS data could be extrapolated to post-OPPS claims data; (2) the variability in allocation of costs across ERCP line items and the existence of claims where the same ERCP code was billed more than once indicate that problems exist with the accuracy of facility coding for these procedures; and (3) analysis of multiple claims data for ERCP may not be applicable to other sets of services.

The Subcommittee made the following recommendations to the Panel, which the Panel approved:

• We should continue to explore the use of multiple procedure claims data for setting payment rates but should continue to use only single procedure claims data to determine relative payment weights for CY 2003.

• We should work with the APC Panel to explore the use of multiple claims data drawn from OPPS claims for services such as radiation oncology in time for the next APC Panel meeting.

• We should educate hospitals on appropriate coding and billing practices to ensure that claims with multiple procedures are properly coded and that costs are properly allocated to each procedure.

One presenter to the panel suggested a method to increase the number of claims that could be considered as single claims. Currently, we consider any claim submitted with two or more primary codes (that is, a code assigned to an APC for separate payment) to be a multiple procedure claim. When these claims contain line items for revenue centers without an accompanying Healthcare Common Procedure Coding System (HCPCS) code there is no way to determine the appropriate primary code with which to package the revenue center. The presenter suggested that we consider all claims where every line contains a separately payable HCPCS code as a single procedure claim, reasoning that on such claims we do not have to determine how and where to “package” line items not identified by a separately payable HCPCS code. Where every line item contains a separately payable HCPCS code, every cost can easily be allocated to a separately payable HCPCS code on the line item and all costs for each HCPCS code can then be accurately and completely determined.

We agree. We describe in section II.B.4 how we determined the number of single claims used to set the APC relative weights proposed for 2003 using this methodology. We ask for comments on our methodology.

Packaging

We sought the Panel's guidance on whether we should package the costs of HCPCS codes for radiologic guidance and radiologic supervision and interpretation services whose descriptors require that they only be performed in conjunction with a surgical procedure.

There are a number of reasons why we package the costs of certain procedures. For example, “add-on” procedures and radiologic guidance procedures should never be billed on a claim without the code for an associated procedure. A facility should not submit a claim for ultrasound guidance for a biopsy unless the claim also includes the biopsy procedure, because the guidance is necessary only when a biopsy is performed. A claim for a packaged guidance procedure (or a supervision and interpretation procedure whose descriptor requires it be performed in association with a surgical procedure) would be returned to the provider for correction and resubmission.

Also, we use packaging because billing conventions allow hospitals to report costs for certain services using only revenue center codes (that is, hospitals are not required to specify HCPCS codes for certain services). Packaging allows these costs to be captured in the data used to calculate median costs for services with an APC.

Several presenters to the panel requested that we not package any radiologic guidance or supervision and interpretation codes. They believe that hospitals will not use codes for which they do not receive a separate payment. If that were the case, it would be difficult to track utilization for these procedures and make it difficult for radiology departments to receive an appropriate payment for their services. A few presenters also pointed out that various forms of guidance with widely varying costs can be used for a single surgical procedure. Therefore, we might unintentionally create an incentive for inappropriate care by packaging several guidance procedures with varying costs into a single surgical code. Additionally, a manufacturer of ultrasound guidance equipment used for placement of radiation fields commented that, because guidance is rarely used for this purpose, its costs could not be adequately captured by packaging it into a common procedure where the vast majority of claims did not use guidance.

The Panel concluded that, even though we could be setting relative weights based on error claims, we should not package additional radiologic guidance and supervision and interpretation procedures and should continue to explore methodologies that would allow these procedures to be recognized for separate payment. The Panel also recommended that radiology guidance codes that were in APC 268 for CY 2001 but that were designated with status indicator “N” as packaged services in 2002, be restored as separately payable services for CY 2003. The Panel requested that this topic be placed on the agenda for the next Panel meeting.

Add-On Codes

We presented for the Panel's consideration several options for payment of add-on codes, including assignment of status indicator “N” to package them into the payment for the base procedure. Add-on codes described additional procedures performed by the same physician that are associated with the primary procedure, and which cannot be billed without the primary procedure. Such a methodology would create a single, weight averaged payment for the parent procedure and the add-on procedure while addressing the problem that any “single” claim for an add-on procedure is, by definition, an error claim. After thorough review, the Panel concluded that we should continue to pay for add-on codes separately, setting relative weights with the use of single procedure claims in spite of the fact that these were error claims. The Panel asked us to continue exploring ways to most appropriately pay for these services. They requested that this item also be placed on the agenda for the next Panel meeting.

We propose to accept the recommendations of the APC Panel both for packaging radiology guidance and supervision and interpretation codes and for payment of add-on codes. We are proposing to pay separately in 2003 for radiology guidance codes that were paid in APC 268 in CY 2001 but that were packaged in 2002.

3. Recommendations of the Advisory Panel and Our Responses

In this section, we consider the Panel's recommendations affecting specific APCs. The most recent data available for the Panel to review in considering specific APC groupings were the 1999-2000 pre-OPPS claims data that were the basis of the CY 2002 relative payment weights. The APC titles are shown in this discussion of the APC Panel recommendations as they existed when the APC Panel met in January 2002. In a few cases the APC titles were changed for the proposed 2003 OPPS and therefore some APCs do not have the same title in Addenda A as they have in this section.

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.B.1 of this preamble, we discuss our proposals regarding the 2 times rule based on the CY 2001 data we are using to recalibrate the 2003 APC relative weights. Section II.B.1 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 2001 and 2002. We refer to the exceptions as “violations of the 2 times” rule in the following discussion.

APC 215: Level I Nerve and Muscle Tests

APC 216: Level III Nerve and Muscle Tests

APC 218: Level II Nerve and Muscle Tests

We presented this agenda item because APC 215 appeared to violate the 2 times rule. In order to remedy this violation, we asked the Panel to consider the following changes:

• Move CPT codes 95858, 95921, and 95922 from APC 215 to APC 218.

• Move CPT code 95930 from APC 216 to APC 218.

• Move CPT code 92275 from APC 216 to APC 231.

• Move CPT code 95920 from APC 218 to APC 216.

A presenter to the Panel who represented a device manufacturer noted that the resources used to provide 95921, Autonomic nerve function test, are not similar to the resources required for performing the procedures in APC 218, where we had suggested moving the device. He requested that the code be reassigned to APC 216 where it resided in calendar year 2000. Because there were very few claims for the code in the 1999 and 2000 data, the Panel voiced concern about making the change without sufficient data to support such a move.

The Panel recommended that the changes we asked them to consider be made, that is, to move CPT codes 95921 and 95922 to APC 218. However, if the calendar year 2001 data support a move of 95921 to APC 216, the Panel recommended that we consider that move.

APC 600: Low Level Clinic Visits

APC 601: Mid Level Clinic Visits

APC 602: High Level Clinic Visits

APC 610: Low Level Emergency Visits

APC 611: Mid Level Emergency Visits

APC 612: High Level Emergency Visits

The Panel's recommendations related to facility coding for clinic and emergency department visits are discussed below, in section VIII.A.

APC 296: Level I Therapeutic Radiologic Procedures

APC 297: Level II Therapeutic Radiologic Procedures

APC 263: Level I Miscellaneous Radiology Procedures

APC 264: Level II Miscellaneous Radiology Procedures

APCs 296, 263, and 264 appear to violate the 2 times rule. We asked the Panel to consider three options for reconfiguring these APCs so that they would conform with the 2 times rule.

Option 1:

Create a new APC, Level III Therapeutic Radiology Procedures, by moving CPT code 75984 from APC 296 and 74475 from APC 297. Also, move CPT codes 76101, 70390, and 71060 from APC 263 to APC 264 and move CPT code 75980 from APC 297 to APC 296.

Option 2:

Move CPT codes 76101, 703690, and 71060 from APC 263 to APC 264 and move CPT code 75984 from APC 296 to APC 264. Move CPT code 75980 from APC 297 to APC 296.

Option 3:

Create a new APC, Level III Miscellaneous Radiology Procedures, by moving CPT codes 76080, 7036736, 76101, 70390, 74190, and 71060 from APC 263. Move CPT code 74327 from APC 296 to APC 263 and move CPT code 75980 from APC 297 to APC 296. APC 264 remains unchanged.

One presenter to the panel objected to the use of miscellaneous APCs in the OPPS. The presenter argued that we are charged with creating clinically coherent APCs and that miscellaneous APCs contradict the principle of clinical coherence. We noted that in spite of considerable effort to do so, we have not been able to incorporate the procedures assigned to miscellaneous APCs into other, more clinically homogeneous APCs. We asked the presenter to propose a configuration for consideration.

The Panel noted that none of the options that we presented resolve all of the 2 times violations. However, the Panel agreed that Option 2 would create more clinically coherent APCs without creating a new APC based on anticipated device costs that would be billed in 2002. In addition, the Panel invited the American College of Radiology and other interested parties to propose further changes for the Panel's consideration next year.

We propose to accept the Panel's recommendations that option 2 be implemented.

APC 230: Level I Eye Tests and Treatments

APC 231: Level III Eye Tests and Treatments

APC 232: Level I Anterior Segment Eye Procedures

APC 233: Level II Anterior Segment Eye Procedures

APC 234: Level III Anterior Segment Eye Procedures

APC 235: Level I Posterior Segment Eye Procedures

APC 236: Level II Posterior Segment Eye Procedures

APC 237: Level III Posterior Segment Eye Procedures

APC 238: Level I Repair and Plastic Eye Procedures

APC 239: Level II Repair and Plastic Eye Procedures

APC 240: Level III Repair and Plastic Eye Procedures

APC 241: Level IV Repair and Plastic Eye Procedures

APC 242: Level V Repair and Plastic Eye Procedures

APC 247: Laser Eye Procedures Except Retinal

APC 248: Laser Retinal Procedures

APC 698: Level II Eye Tests and Treatments

APC 699: Level IV Eye Tests and Treatments

We asked the Panel to review these APCs to address clinical inconsistencies and violations of the 2 times rule. We suggested creating a new level for posterior segment eye procedures and other changes in order to make the groups more clinically coherent, as follows:

• Move CPT codes 65260 and 67218 from APC 237 to 236.

• Create a new APC (Level IV Posterior Segment Eye Procedures) by moving CPT codes 67107, 67112, 67040, and 67108 from APC 237.

• Move CPT codes 67145, 67105, and 67210 from APC 247 to APC 248.

• Move CPT code 66999 from APC 247 to APC 232.

• Move CPT code 67299 from APC 248 to APC 235.

• Move CPT codes 65855, 66761, and 66821 from APC 248 to APC 247.

• Move CPT code 67820 from APC 698 to APC 230.

• Move CPT code 67208 from APC 231 to APC 235.

• Move CPT codes 92226, 92284, 65205, 92140 from APC 231 to APC 698.

• Move CPT code 92235 from APC 231 to APC 699.

• Move CPT code 68100 from APC 233 to APC 232.

• Move CPT code 65180 from APC 233 to APC 234.

• Create a new APC (Level IV Anterior Segment Eye Procedures) by moving CPT codes 66172, 66185, 66180, 66225 from APC 234.

• Move CPT code 92275 from APC 216 to APC 231.

No presenters commented on these APCs, and, after brief discussion, the Panel recommended concurrence with our suggested changes. We propose to accept the Panel's recommendations. We note that when we were able to use 2001 claims data to re-evaluate the changes recommended by the Panel for these APCs, we found violations of the 2 times rule in the reconfigured APCs. Nonetheless, we propose to accept the

Panel's recommendations because they result in more clinically coherent APCs. We solicit comments on further changes that would address the violations of the 2 times rule. We plan to place these APCs on the panel's agenda for 2003.

APC 110: Transfusion

APC 111: Blood Product Exchange

APC 112: Apheresis, Photopheresis, and Plasmapheresis

We presented these APCs to the Panel in 2001 because of their low payment rates and concern that our cost data was inaccurate. These APCs were on the agenda this year in order to obtain further comment on our cost data. We suggested no changes in the structure of these APCs.

Representatives of two associations made presentations regarding these APCs. One recommended that all the plasma derivatives and recombinant analogs that currently receive transitional pass-through payments be assigned to permanent APCs in 2003, similar to the designations of other blood products. The representative of the second association supported this recommendation.

The second presenter also pointed out that, consistent with our billing instructions, every claim that a hospital submits for a blood transfusion should include codes for both the blood product and the transfusion. Therefore, payment for blood and blood products is another area affected by the use of single bills in setting payment weights. The Panel agreed to look specifically at blood in its work on the multiple claims issues.

The Panel recommended that plasma derivatives be placed in their own APCs and classified in the same manner as whole blood products. In addition, the Panel observed that hospitals incur additional costs with each unit of blood product transfused and, therefore, recommended that APC 110 be revised to allow for the costs of additional units of blood product and clinical services.

In section III.C, we discuss our payment proposals for drugs and biologicals for which pass-through payments are scheduled to expire in 2003. Those proposals would affect payment for blood and blood products. We propose not to accept the Panel's recommendation to change current OPPS payment policy for transfusions. The current payment reflects weight averaging over the number of units transfused. Therefore, unless a hospital specializes in transfusing multiple units of blood, payments for this procedure should be, on average, appropriate.

Panel Recommendations to Defer Changes Pending Availability of 2001 Claims Data

Regarding the remaining APC groups that are addressed below, the Panel recommended that we make no changes until data from claims billed in 2001 under the OPPS become available for analysis. The Panel further requested that we place the APC groups in this section on the agenda for consideration at its meeting in 2003. The changes that we propose for the APCs in this section are based upon our review of the 2001 claims data, which did not become available until March 2002.

APC 203: Level V Nerve Injections

APC 204: Level VI Nerve Injections

APC 206: Level III Nerve Injections

APC 207: Level IV Nerve Injections

Several presenters to the Panel suggested changes in the configuration of these APCs because of concerns that the current classifications result in payment rates that are too low relative to the resource costs associated with certain procedures in the APCs. Several of these APCs include procedures associated with drugs or with device categories for which pass-through payments are scheduled to expire in 2003. The Panel recommended that we not change the structure of these APCs at this time. Because the structure of these APCs was substantially changed for 2002, and 2002 cost data was not yet available, the Panel felt it would be appropriate to review 2002 cost data prior to making further structural changes to these APCs. We propose to accept the Panel's recommendation. We will place these APCs on the Panel's agenda when 2002 cost data becomes available.

APC 43: Closed Treatment Fracture Finger/Toe/Trunk

APC 44: Closed Treatment Fracture/Dislocation, Except Finger/Toe/Trunk

On the basis of 1999-2000 claims data, these APCs violate the 2 times rule. The Panel reviewed these APCs and recommended no changes.

Our subsequent review of 2001 OPPS cost data shows continuing violations of the 2 times rule and that costs within these APCs are virtually identical. Therefore, we propose to combine APCs 43 and 44 into APC 43. The procedures in the consolidated APC are clinically homogeneous.

APC 58: Level I Strapping and Cast Application

APC 59: Level II Strapping and Cast Application

The Panel reviewed these APCs and recommended that no changes be made pending analysis of 2001 claims data. The panel did recommend that billing instructions be developed on the appropriate use of the codes in these APCs. We agree with the Panel's recommendation regarding the need for billing instructions, and we expect to develop such instructions for hospitals to use in 2003.

Our subsequent review of 2001 claims data reveals that, in some cases, costs for short casts and splints are greater than costs for long casts and splints. Moreover, the proposed payments for these two APCs, based on 2001 OPPS data, would not differ significantly from each other. Therefore, we propose to combine the codes in APC 58 and APC 59 into a single APC, APC 58. Combining these APCs does not compromise clinical homogeneity. The relative weight of the proposed single APC is virtually identical to the relative weight of each of the two current APCs. We propose to continue to work with hospitals to develop appropriate coding for these services and will review the appropriate APC structure for these services next year.

APC 279: Level I Angiography and Venography Except Extremity

APC 280: Level II Angiography and Venography Except Extremity

Without the benefit of 2001 OPPS claims data, it was difficult for the Panel to determine whether the apparent violation of the 2 times rule in APCs 279 and 280 was attributable to underreporting of procedures or inaccurate coding. Therefore, the Panel recommended no changes pending the availability of the more recent claims data. After subsequently reviewing the 2001 claims data, we propose to move CPT codes 75978, Transluminal balloon angioplasty, venous, radiological supervision and interpretation, and 75774, Angiography, selective, each additional vessel studied after basic examination, radiological supervision and interpretation, to new APC 0668. This would resolve violations of the 2 times rule and result in clinically coherent APCs.

APC 115: Cannula/Access Device Procedures

We propose to move CPT code 36860, External Cannula Declotting; without balloon catheter, to APC 103, Miscellaneous Vascular Procedures. We believe this makes both APC 115 and APC 103 more clinically homogeneous and it resolves a violation of the 2 times rule in APC 115 that was caused by the presence of CPT code 36860.

APC 93: Vascular Repair/Fistula Construction

APC 140: Esophageal Dilation without Endoscopy

APC 141: Upper GI Procedures

APC 142: Small Intestine Endoscopy

APC 143: Lower GI Endoscopy

APC 144: Diagnostic Anoscopy

APC 145: Therapeutic Anoscopy

APC 146: Level I Sigmoidoscopy

APC 147: Level II Sigmoidoscopy

APC 148: Level I Anal/Rectal Procedure

APC 149: Level II Anal/Rectal Procedure

Our subsequent review of 2001 claims data suggests that the cost data for APCs 144 and 145 are aberrant. The cost data for these APCs yield relative weights and payments that are significantly higher than the relative weights for APCs 146 and 147, which consist of similar procedures performed through a sigmoidoscope rather than an anoscope. As currently arranged, the APC configuration for these services could provide a financial incentive for hospitals to perform unnecessary anoscopic procedures, either alone or with a sigmoidoscopy. To rectify this problem, we propose to move the procedures in APCs 144 and 145 to APC 147 with the exception of CPT code 46600, Anoscopy; diagnostic, which we propose to assign to APC 340, Minor Ancillary procedures. We believe these changes would result in clinically coherent APCs with appropriate relative weights and payment rates.

APC 363: Otorhinolaryngologic Function Tests

Based on 2001 claims data, we propose to move CPT codes 92543, 92588, 92520, 92546, 92516, 92548, and 92584 to new APC 0660 (Level III Otorhinolaryngolgic Function Tests). This change would resolve a 2 times rule violation and create clinically coherent APCs.

APC 96: Non-Invasive Vascular Studies

APC 265: Level I Diagnostic Ultrasound Except Vascular

APC 266: Level II Diagnostic Ultrasound Except Vascular

APC 267: Vascular Ultrasound

APC 269: Level I Echocardiogram Except Transesophageal

APC 270: Transesophageal Echocardiogram

The APC Panel recommended making no changes in the configuration of these APCs. Several groups made a joint proposal to reconfigure these APCs arguing that their proposal resulted in more clinically coherent APCs. However, several other presenters commented that the joint proposal did not include several physician groups who commonly perform these procedures.

Based on 2001 claims data, we propose to make several changes in order to resolve 2 times rule violations and to make these APCs more clinically coherent. Specifically, we propose to move CPT code 43499 from APC 0140 to APC 141; CPT code 93721 from APC 0096 to APC 368; CPT code 93740 from APC 0096 to APC 367; CPT code 93888 from APC 0267 to APC 266; and CPT code 93931 from APC 0267 to APC 266. We also propose to move CPT codes 78627, 76825, and 93320 from APC 0269 to new APC 0671 to achieve more clinical coherence. We also propose to create new APC 0670 for intravascular ultrasound and intracardiac echocardiography consisting of CPT codes 37250, 37251, 92978, 92979, and 93662.

APC 291: Level I Diagnostic Nuclear Medicine Excluding Myocardial Scans

APC 292: Level II Diagnostic Nuclear Medicine Excluding Myocardial Scans

Subsequent to the APC Panel meeting, we received comments on these APCs from the Nuclear Medicine Task Force. After a thorough review of that proposal within the context of the 2001 claims data, we propose to accept the recommendations of the Nuclear Medicine Task Force, which would result in a complete reconfiguration of APCs 290, 291, and 292. Although the reconfiguration would create violations of the 2 times rule, we agree with the Task Force that the reconfigured APCs are more clinically coherent. We note that APCs 290, 291, and 292 as currently configured would also violate the 2 times rule. Therefore, we solicit comments on the proposed reconfiguration of APCs 290, 291, and 292 and on alternative groupings that would achieve clinical coherence without violating the 2 times rule.

APC 274: Myleography

APC 179: Urinary Incontinence Procedures

APC 182: Insertion of Penile Prosthesis

APC 19: Level I Excision/Biopsy

APC 20: Level II Excision/Biopsy

APC 21: Level IV Excision/Biopsy

APC 22: Level V Excision/Biopsy

APC 694: Level III Excision/Biopsy

Based on 2001 claims data, we propose to move several codes from APC 19 to APC 20 and several codes from ACP 20 to APC 21. Additionally, we propose to move CPT codes 11770, 54105, and 60512 to APC 22. We also propose to move CPT code 58999 to APC 191 and CPT code 37799 to APC 35. These changes would result in clinically coherent APCs that do not violate the 2 times rule.

APC 24: Level I Skin Repair

APC 25: Level II Skin Repair

APC 26: Level III Skin Repair

APC 27: Level IV Skin Repair

APC 686: Level V Skin Repair

Based on 2001 claims data, we propose to move CPT code 43870 from APC 0025 to APC 141; and CPT codes with high costs from APC 26 to APC 27. We also propose to move the codes remaining in APC 26 to APC 25. APC 26 would then be deleted. These changes would result in a more compact APC structure without compromising the clinical homogeneity of the reconfigured APCs and without violating the 2 times rule. See Table 1 for codes moving from APC 26 to APC 25 or APC 27.

Table 1.—HCPCS Codes Proposed To Be Moved From APC 26 into APC 25 or APC 27

2002 APC 26

2003 APC 25

2003 APC 27

11960

11960

11970

11970

12037

12037

12047

12047

12057

12057

13150

13150

13160

13160

14000

14000

14001

14001

14020

14020

14021

14021

14040

14040

14041

14041

14060

14060

14061

14061

14300

14300

14350

14350

15000

15000

15001

15001

15050

15050

15101

15101

15120

15120

15121

15121

15200

15200

15201

15201

15220

15220

15221

15221

15240

15240

15241

15241

15260

15260

15261

15261

15351

15351

15400

15400

15401

15401

15570

15570

15572

15572

15574

15574

15576

15576

15600

15600

15610

15610

15620

15620

15630

15630

15650

15650

15775

15775

15776

15776

15819

15819

15820

15820

15821

15821

15822

15822

15823

15823

15825

15825

15826

15826

15829

15829

15835

15835

20101

20101

20102

20102

20910

20910

20912

20912

20920

20920

20922

20922

20926

20926

23921

23921

25929

25929

33222

33222

33223

33223

44312

44312

44340

44340

15580—Code Deleted

15625—Code Deleted

APC 77: Level I Pulmonary Treatment

APC 78: Level II Pulmonary Treatment

APC 251: Level I ENT Procedures

APC 252: Level II ENT Procedures

APC 253: Level III ENT Procedures

APC 254: Level IV ENT Procedures

APC 256: Level V ENT Procedures

Based on 2001 claims data, we propose to address violations of the 2 times rule by moving CPT codes 40812, 42330, and 21015 from APC 0252 to APC 253 and by moving CPT codes 41120 and 30520 to APC 254.

B. Other Changes Affecting the APCs

1. 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. However, the statute authorizes the Secretary to 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.

Taking into account the proposed APC changes discussed in relation to the APC panel recommendations in this section of this preamble and the use of 2001 claims 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 table contains APCs that we propose to exempt 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.

The median cost for hospital outpatient services for these and all other APCs can be found at website:

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

Table 2.—Table of Exempted Codes

NPRM APC

Description

0012

Level I Debridement & Destruction

0019

Level I Excision/ Biopsy

0020

Level II Excision/ Biopsy

0025

Level II Skin Repair

0032

Insertion of Central Venous/Arterial Catheter

0043

Closed Treatment Fracture Finger/Toe/Trunk

0046

Open/Percutaneous Treatment Fracture or Dislocation

0058

Level I Strapping and Cast Application

0074

Level IV Endoscopy Upper Airway

0080

Diagnostic Cardiac Catheterization

0081

Non-Coronary Angioplasty or Atherectomy

0093

Vascular Repair/Fistula Construction

0097

Cardiac and Ambulatory Blood Pressure Monitoring

0099

Electrocardiograms

0103

Miscellaneous Vascular Procedures

0105

Revision/Removal of Pacemakers, AICD, or Vascular

0121

Level I Tube changes and Repositioning

0140

Esophageal Dilation without Endoscopy

0147

Level II Sigmoidoscopy

0148

Level I Anal/Rectal Procedure

0155

Level II Anal/Rectal Procedure

0165

Level III Urinary and Anal Procedures

0170

Dialysis

0179

Urinary Incontinence Procedures

0191

Level I Female Reproductive Proc

0192

Level IV Female Reproductive Proc

0203

Level VI Nerve Injections

0204

Level I Nerve Injections

0207

Level III Nerve Injection

0218

Level II Nerve and Muscle Tests

0225

Implantation of Neurostimulator Electrodes

0230

Level I Eye Tests & Treatments

0231

Level III Eye Tests & Treatments

0233

Level II Anterior Segment Eye Procedures

0235

Level I Posterior Segment Eye Procedures

0238

Level I Repair and Plastic Eye Procedures

0239

Level II Repair and Plastic Eye Procedures

0252

Level II ENT Procedures

0260

Level I Plain Film Except Teeth

0274

Myelography

0286

Myocardial Scans

0290

Level I Diagnostic Nuclear Medicine Excluding Myocardial Scans

0291

Level II Diagnostic Nuclear Medicine Excluding Myocardial Scans

0294

Level I Therapeutic Nuclear Medicine

0297

Level II Therapeutic Radiologic Procedures

0303

Treatment Device Construction

0304

Level I Therapeutic Radiation Treatment Preparation

0330

Dental Procedures

0345

Level I Transfusion Laboratory Procedures

0354

Administration of Influenza/Pneumonia Vaccine

0356

Level II Immunizations

0367

Level I Pulmonary Test

0368

Level II Pulmonary Tests

0370

Allergy Tests

0373

Neuropsychological Testing

0600

Low Level Clinic Visits

0602

High Level Clinic Visits

0660

Level III Otorhinolaryngologic Function Tests

0692

Electronic Analysis of Neurostimulator Pulse Generators

0694

Mohs Surgery

0698

Level II Eye Tests & Treatments

2. Procedures Moved From New Technology APCs to Clinically Appropriate APCs

In the November 30, 2001 final rule, we made final our proposal to change the period of time during which a service may be paid under a new technology APC (66 FR 59903), initially established in the April 7, 2000 final rule. That is, beginning in 2002, we will retain a service within a new technology APC group until we have acquired adequate data that allow us to assign the service to a clinically appropriate APC. This policy allows us to move a service from a new technology APC in less than 2 years if sufficient data are available, and it also allows us to retain a service in a new technology APC for more than 3 years if sufficient data upon which to base a decision for reassignment have not been collected.

Effective in 2003, we propose to move several procedures from new technology APCs to clinical APCs. Those procedures and the clinical APCs to which we propose to assign the procedures for payment in 2003 are identified in Table 3. Based upon our review of the 2001 OPPS claims data, we believe we have sufficient information upon which to base assignment of these procedures to clinical APCs. In making this determination, we reviewed both single and multiple procedure claims. We compared median cost data for the new technology procedures with median cost data for procedures that are clinically similar and for which we would expect costs to be similar. We also compared median cost data for the new technology procedures with median cost data for clinically related procedures, such as different methods of treating prostatic hypertrophy, where expected median costs were lower or higher than those of the new technology procedure. In some cases we propose classification of a new technology procedure in an APC with procedures that are similar both clinically and in terms of resource consumption. In other cases, we propose to create a new APC for a new technology procedure because we do not believe any of the existing APCs contain procedures that are clinically similar and similar in terms of resource consumption. We solicit comments on our proposed reassignment of the new technology procedures listed in Table 3.

Table 3.—Proposed Changes in HCPCS Assignments From New Technology APCs to Procedure APCs for 2003

HCPCS

Description

2002 SI

2003 SI

2002 APC

2003 APC

19103

Bx breast percut w/device

S

T

0710

0658

33282

Implant pat-active ht record

S

S

0710

0680

36550

Declot vascular device

T

T

0972

0677

53850

Prostatic microwave thermotx

T

T

0982

0675

53852

Prostatic rf thermotx

T

T

0982

0675

55873

Cryoablate prostate

T

T

0982

0674

76075

Dual energy x-ray study

S

S

0707

0288

76076

Dual energy x-ray study

S

S

0707

0665

77520

Proton trmt, simple w/o comp

S

S

0710

0664

77522

Proton trmt, simple w/comp

S

S

0710

0664

77523

Proton trmt, intermediate

S

S

0712

0664

77525

Proton treatment, complex

S

S

0712

0664

92586

Auditor evoke potent, limit

S

S

0707

0218

95965

Meg, spontaneous

T

S

0972

0717

95966

Meg, evoked, single

T

S

0972

0714

95967

Meg, evoked, each addl

T

S

0972

0712

C1300

Hyperbaric oxygen

S

S

0707

0659

C9708

Preview Tx Planning Software

T

T

0975

0973

G0125

PET img WhBD sgl pulm ring

T

S

0976

0667

G0166

Extrnl counterpulse, per tx

T

T

0972

0678

G0168

Wound closure by adhesive

T

X

0970

0340

G0173

Stereo radoisurgery, complete

S

S

0721

0663

G0204

Diagnostic mammography digital

S

S

0707

0669

G0206

Diagnostic mammography digital

S

S

0707

0669

G0210

PET img whbd ring dxlung ca

S

S

0714

0667

G0211

PET img whbd ring init lung

S

S

0714

0667

G0212

PET img whbd ring restag lun

S

S

0714

0667

G0213

PET img whbd ring dx colorec

S

S

0714

0667

G0214

PET img whbd ring init colre

S

S

0714

0667

G0215

PET img whbd restag col

S

S

0714

0667

G0216

PET img whbd ring dx melanom

S

S

0714

0667

G0217

PET img whbd ring init melan

S

S

0714

0667

G0218

PET img whbd ring restag mel

S

S

0714

0667

G0220

PET img whbd ring dx lymphom

S

S

0714

0667

G0221

PET img whbd ring init lymph

S

S

0714

0667

G0222

PET img whbd ring resta lymp

S

S

0714

0667

G0223

PET img whbd reg ring dx hea

S

S

0714

0667

G0224

PET img whbd reg ring ini hea

S

S

0714

0667

G0225

PET img whbd ring restag hea

S

S

0714

0667

G0226

PET img whbd dx esophag

S

S

0714

0667

G0227

PET img whbd ring ini esopha

S

S

0714

0667

G0228

PET img whbd ring restg esop

S

S

0714

0667

G0229

PET img metabolic brain ring

S

S

0714

0667

G0230

PET myocard viability ring

S

S

0714

0667

G0231

PET WhBD colorec; gamma cam

S

S

0714

0667

G0232

PET WhBD lymphoma; gamma cam

S

S

0714

0667

G0233

PET WhBD melanoma; gamma cam

S

S

0714

0667

G0234

PET WhBD pulm nod, gamma cam

S

S

0714

0667

3. APC Assignment for New Codes Created During 2002

During CY 2002 we created several HCPCS codes to describe services newly covered by Medicare and payable under the hospital OPPS. While we have assigned these services to APCs for CY 2002, the assignments are open to public comment in this proposed rule. In this proposed rule, we solicit comment on the APC assignment of these services. In addition, in this proposed rule, we are proposing the creation of several new HCPCS codes and APC assignments with an effective date of January 1, 2003. Table 4 below includes new procedural HCPCS codes either created for implementation in July 2002, which we intend to implement in October 2002, or which we propose to implement January 2003.

Table 4 does not include new codes for drugs and devices for which we established or intend to establish pass-through payment eligibility in July or October 2002. Furthermore, neither the new procedural HCPCS nor the new pass-through codes intended as of this publication for implementation beginning October 2002 or later are included in Addendum B of this proposed rule.

Table 4.—New G Codes for 2002 and Proposed G Codes for 2003

Code

Long descriptor

APC

SI

Proposed effective date

G0245

Initial physician evaluation of a diabetic patient with diabetic sensory neuropathy resulting in a loss of protective sensation (LOPS) which must include the procedure used to diagnose LOPS; a patient history; and a physician examination that consists of at least the following elements—* * *

0600

V

7/01/02

G0246

Follow-up physician evaluation of a diabetic patient with diabetic sensory neuropathy resulting in a loss of protective sensation (LOPS) which must include the procedure used to diagnose LOPS; a patient history; and a physician examination that includes—* * *

0600

V

7/01/02

G0247

Routine foot care by a physician of a diabetic patient with diabetic sensory neuropathy resulting in a loss of protective sensation (LOPS) to include if present at least the following—* * *

0009

T

7/01/02

G0248

Demonstration, at initial use, of home INR monitoring for a patient with mechanical heart valve(s) who meets Medicare coverage criteria, under the direction of a physician; includes: demonstration use and care of the INR monitor, obtaining at least one blood sample provision of instructions for reporting home INR test results and documentation of a patient's ability to perform testing

0708

S

7/01/02

G0249

Provision of test material and equipment for home INR monitoring to patient wih mechanical heart valve(s) who meets Medicare coverage criteria. Includes provision of materials for use in the home and reporting of test results to physician; per 4 tests

0708

S

7/01/02

G0250

Physician review/interpretation and patient management of home INR test for patient with mechanical heart valve(s) who meets other coverage criteria; per 4 tests (does not require face-to-face service)

N/A

E

7/01/02

G0AAA

PET imaging for initial diagnosis of breast cancer and/or surgical planning for breast cancer (for example, initial staging of axillary lymph nodes), not covered by Medicare.

N/A

E

10/01/02

G0BBB

PET imaging for breast cancer, full and partial-ring PET scanners only, staging/restaging after or prior to course of treatment

0285

S

10/01/02

G0CCC

PET imaging for breast cancer, full and partial-ring PET scanners only, evaluation of response to treatment, performed during course of treatment

0285

S

10/01/02

G0DDD

Current Perception Threshold/Sensory Nerve Conduction Test, (SNCT) per limb, any nerve.

N/A

E

10/01/02

G0EEE

Intravenous infusion(s) during separately payable observation stay, Per observation stay (must be reported with G0244)

0340

X

10/01/02

G0FFF

Bone marrow aspiration and biopsy performed through a single incision during a single session

0003

T

1/01/03

G0GGG

Unscheduled or emergency treatment for dialysis for ESRD patient in the outpatient department of a hospital that does not have a certified ESRD facility

0170

S

1/01/03

G0HHH

Injection procedure for sacroiliac joint; arthrography

N/A

N

1/01/03

G0JJJ

Injection procedure for sacroiliac joint; provision of anesthetic, steroid, and/or other therapeutic agent

0204

T

1/01/03

G0KKK

Prostate brachytherapy, including transperineal placement of needles or catheters into the prostate, cystoscopy, and interstitial radiation source application.

0684

T

1/01/03

G0LLL

Initial nursing assessment of patient directly admitted to observation with diagnosis of congestive heart failure, chest pain or asthma.

N

N

1/01/03

G0MMM

Initial nursing assessment of patient directly admitted to observation with diagnosis other than congestive heart failure, chest pain or asthma.

0706

S

1/01/03

G0NNN

Transcatheter placement of a drug eluting intracoronary stent(s), percutaneous, with or without other therapeutic intervention, any method; single vessel.

0656

T

01/01/03

G0OOO

Transcatheter placement of a drug eluting intracoronary stent(s), percutaneous, with or without other therapeutic intervention, any method; each additional vessel.

0656

T

01/01/03

HCPCS Codes Created During CY 2002

The G codes G0245 through G0250 were created to implement payment for newly covered Medicare services due to national coverage determinations. The G codes G0AAA-G0DDD will be established October 1, 2002 as a result of national coverage policies that will be effective October 1, 2002. These codes were created to accurately describe the services covered, to ensure they were reported correctly, to track their utilization, and to establish payment. We solicit comments on the APC assignment of these services. The codes describing evaluation and management services were assigned to clinic visit APCs containing similar services, and the codes describing procedural services were assigned to new technology APCs or to APCs containing procedures requiring similar resource consumption. Because G0250 is a professional service furnished by a physician, it is not payable under OPPS.

We expect to implement HCPCS code G0EEE (Intravenous Infusion(s) During Separately Payable Observation Stay) effective October 1, 2002 to describe infusion therapy given during a separately payable observation stay. This code is discussed in detail in section VIII.B of this proposed rule. We have assigned it to APC 0340. We believe APC 0340 appropriately accounts for the resources used for infusion during observation. This is because we believe that Q0081, which represents the same service as G0EEE, is typically billed with an APC that has a higher relative weight, therefore making APC 0120 payable at 50 percent of its payment rate.

HCPCS Codes Proposed in This Rule for January 1, 2003

We are proposing the creation of several new HCPCS codes for 2003 in order to address issues that have come to our attention, to describe new technology procedures, to implement policy proposals discussed in this rule, and to allow more appropriate reporting of procedures currently described by CPT (HCPCS Level I) codes.

(1) G0FFF—Bone Marrow Aspiration and Biopsy Services—we are proposing to create this code to describe bone marrow aspiration and biopsy performed through the same incision. We propose to place this code in APC 0003. This code also appears in the proposed rule for the physician fee schedule, published in the June 28, 2002 issue of the

Federal Register

(67

FR 43846). This code would facilitate proper reporting of this procedure.

(2) G0GGG—Unscheduled and Emergency Treatment for ESRD Patients—we are proposing this code in order to facilitate payment for dialysis provided to ESRD patients in the outpatient department of a hospital that does not have a certified ESRD facility. This code is described in detail in section VIII.G of this proposed rule.

(3) G0HHH and G0JJJ—Sacroiliac Joint Injections—we are proposing to create these two codes to replace CPT code 27096, Injection procedure for sacroiliac joint, arthrography and/or anesthetic steroid. CPT code 27096 describes two distinct procedures requiring different resource consumption. Moreover, our policy of packaging injection procedures required packaging of this procedure even when it was used to report injection of a steroid or anesthetic. In these cases, it was appropriately billed without another procedure and should have been payable. Therefore, in order to facilitate appropriate reporting and payment for the procedures described by CPT code 27096, we propose to create G0HHH, Injection procedure for sacroiliac joint, arthrography, and G0JJJ, Injection procedure for sacroiliac joint, provision of anesthetic and/or steroid. G0HHH would be given status indicator N, and G0JJJ would be assigned to APC 0204.

(4) G0KKK—Prostate Brachytherapy—we are proposing this code to implement our policy decision discussed in section III.C.3 of this proposed rule.

(5) G0LLL and G0MMM—Observation Care—we are proposing to create these codes to describe observation care provided to a patient who is directly admitted from a physician's office to a hospital for observation care. These codes are discussed in detail in section VIII.B of this rule.

(6) G0NNN, G0OOO; Drug Eluting Stents—

Drug-Eluting Stents

Drug-eluting coronary artery stents (referred to as “drug-eluting stents” in the discussion that follows) have been developed to combat the problem of restenosis of blood vessels previously treated for stenosis. The drug is coated on a stent with a special polymer, and after the stent is placed in the vessel, the drug is slowly released into the vessel wall tissue over a period of 30 to 45 days. The drug coating on the stent is intended to prevent the build-up of scar tissue that can narrow the reopened artery. The FDA has not yet approved this technology for general use. We understand the earliest date that a decision from the FDA is anticipated is late 2002.

We received an application to establish a new medical device category eligible for transitional pass-through payment under the OPPS for drug-eluting stents from a manufacturer of these stents. In the application for the new device category, the manufacturer asserts that drug-eluting stents meet the criteria for establishing a new device category that were set forth in the November 2, 2001

Federal Register

. Specifically, the manufacturer believes a new device category is appropriate because drug-eluting stents meet the cost significance thresholds for a new device category, and they provide substantial therapeutic benefit to Medicare beneficiaries compared to other available therapies for coronary atherosclerosis.

Based on our review of the application as well as other information pertaining to drug-eluting stents, we determined that drug-eluting stents are described by an existing pass-through device category. As we discuss in section III.D of this preamble, section 1833(t)(6)(B)(ii)(IV) of the Act requires that a new category must include medical devices for which no existing category, or one previously in effect, is appropriate. In the program memorandum that we issued to our contractors on March 22, 2001 (Transmittal A-01-41) with instructions for the implementation of category codes for use in making transitional pass-through payments for devices, we established two categories that describe and could be used to bill for drug-eluting stents: HCPCS code C1874, Stent, coated/covered, with delivery system, and HCPCS code C1875, Stent, coated/covered, without delivery system. These two categories were based on devices that previously qualified for transitional pass-through payment on an item-specific basis. Although these two device categories are among those that will sunset after December 31, 2002, as we discuss in section III.C of this preamble, the fact that they exist precludes the establishment of a new device category for drug-eluting stents.

Payment for drug-eluting stents is not allowed under the OPPS until they receive FDA approval for general use. If the drug-eluting stents are approved for general use by the FDA, payment would be packaged into the APC payment for the procedures with which the stents are used. The cost of drug-eluting stents would be incorporated within the APC relative payment weights when we recalibrate the payment weights in CY 2005 using CY 2003 claims data.

In considering how we would pay for drug eluting stents under OPPS we thought carefully about how the payment should relate to payment for these stents under IPPS. Section 533 of BIPA added sections 1886(d)(5)(K) and (d)(5)(L) to the Act (as implemented by § 42 CFR 412.87 and 412.88 ) to reduce the time needed under the hospital inpatient PPS for the DRG system to recognize the higher costs of new technologies that meet certain criteria. Drug-eluting stents did not meet the inpatient PPS new technology cost threshold criterion in the May 9, 2002 proposed rule to update the hospital inpatient PPS for FY 2003. Therefore, in that proposed rule, we listed a new ICD-9 procedure code 36.07 (Insertion of drug-eluting coronary artery stent(s)) that would be effective for use October 1, 2002. We also proposed to add ICD-9 code 00.55 (Insertion of drug-eluting noncoronary artery stent) (67 FR 31630). To be consistent with our prior practice of assigning new technology to the same DRGs to which its predecessor technologies were assigned, we proposed in the May 9 inpatient PPS proposed rule to assign inpatient cases involving ICD-9 code 36.07 to DRG 517 (Percutaneous Cardiovascular Procedure with Coronary Artery Stent without AMI).

However, comments to the May 9, 2002 proposed IPPS rule and our own further consideration of this issue persuaded us that a different approach was needed for the IPPS given the preliminary evidence that drug-eluting stents could prove potentially to be transformational technology in the treatment of coronary artery disease. While this technology is not yet approved for general use by FDA, commenters to the May 9 hospital inpatient PPS proposed rule reported that drug-eluting stents have shown promise to significantly advance the treatment of coronary artery disease, and they encouraged CMS to consider the available data to determine the most appropriate DRG payment. Commenters supported reassignment of the new procedure codes for drug-eluting stent insertions to higher paying DRGs or, if necessary, the modification of all affected DRGs, once verifiable data on the costs associated with drug-eluting stents become available.

Many of the commenters who supported higher payment under the inpatient PPS for this technology were clinical practitioners and hospitals, who expressed great anticipation for the potential benefits of this technology. In addition, commenters referred to the likelihood that, once approved, patients would demand to have these new drug-

eluting stents, putting tremendous financial strain on hospitals.

Commenters to the proposed rule for the inpatient PPS for FY 2003 also argued there should be long-term cost savings to the Medicare program and the health system generally from this technology after approval by the FDA. Specifically, if dramatically fewer patients require restenting, savings will result from fewer repeat angioplasty procedures. And, to the extent bypass surgeries are reduced, savings would result from that outcome as well.

In responding to these commenters in the inpatient final rule published in the

Federal Register

on August 1, 2002 (67 FR 50003), we noted that, although the FDA has not yet approved this technology for general use, public presentation of the results from recent clinical trials have found virtually no in-stent restenosis in patients treated with the drug-eluting stent. Therefore, we recognize the potentially significant impact this technology may conceivably have on the treatment of coronary artery blockages.

We are concerned that, if the FDA does approve this technology and the predictions of its rapid, widespread use are accurate, significant strain on hospital financial resources would result. In particular, we are concerned that the higher costs of this technology would create undue financial hardships for hospitals due to the high volume of stent cases and the fact that a large proportion of these cases could involve the new technology soon after FDA approval. Therefore, in the final rule for the FY 2003 inpatient PPS, we implemented an unprecedented approach in response to the unique circumstances surrounding the potential breakthrough nature of this technology and we created two new DRGs to reflect cases involving the insertion of a drug-eluting coronary artery stent. We discuss in detail in the final inpatient PPS rule our rationale for establishing these DRGs (67 FR 50003-50005).

Although the clinical trials for drug-eluting stents are being conducted on hospital inpatients, our 2001 hospital outpatient claims data included nearly 18,000 claims for procedures utilizing other types of coronary stents in the hospital outpatient setting. Every indication points to a steady increase in the future volume of coronary stent procedures performed on an outpatient basis. The same concerns that we express above about the impact of the advent of drug-eluting stents on hospital resources apply to procedures performed in the outpatient setting as well as the inpatient setting. We created these new DRGs for drug-eluting stents to ensure and promote beneficiary access to the best care possible by ensuring that our payment system keeps pace with what we believe will be a growing volume of coronary stent procedures if FDA approves drug-eluting coronary artery stents. We want to ensure that the costs of drug-eluting stents will be recognized sufficiently quickly to ensure beneficiary access in the outpatient setting over the 2 years that it will take for the costs of these devices to appear in the Medicare data on which we will base Medicare payments for them.

Drug-eluting stents may have been commercially marketed for 2 years by the time cost data for stent insertion procedures performed in CY 2003 are incorporated into the APC relative weights under the OPPS for CY 2005. Therefore, as we have done under the inpatient PPS for FY 2003 under these exceptional circumstances, we propose to deviate from our standard OPPS payment methodology to ensure consistent payment for drug-eluting stents in both the inpatient and outpatient settings; to ensure that hospital resources are not negatively affected by a sudden surge in demand for this new technology if FDA approval is received; and, to ensure that Medicare payment does not impede beneficiary access to what appears to be a potentially landmark advance in the treatment of coronary disease. Consistent with the special approach we implemented in the inpatient PPS final rule, we propose to create two new HCPCS codes and a new APC that may be used to pay for the insertion of coronary artery drug-eluting stents under the OPPS, to be effective if these stents receive FDA approval for general use. Of course, as with other new procedures, FDA approval does not mean that Medicare will always cover the approved item. Medicare coverage depends upon whether an item or service is medically necessary to treat illness or injury as determined by Medicare contractors based on the specifics of individual cases.

The new HCPCS codes that we propose are as follows: G0NNN—Transcatheter placement of a drug eluting intracoronary stent(s), percutaneous, with or without other therapeutic intervention, any method; single vessel G0OOO—Transcatheter placement of a drug eluting intracoronary stent(s), percutaneous, with or without other therapeutic intervention, any method; each additional vessel.

We propose to assign G0NNN and G0OOO to new APC 0656, Transcatheter Placement of Drug-Eluting Coronary Stents, with a status indicator of T.

To establish a payment amount for the proposed new APC, we propose to apply the same assumptions that we used in establishing the weights for DRG 526 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with AMI) and DRG 527 (Percutaneous Cardiovascular Procedure With Drug-Eluting Stent Without AMI) as described in the final rule implementing the FY 2003 inpatient PPS. That is, based on prices in countries where drug-eluting stents are currently being used, manufacturer information and information furnished in response to the May 9, 2002 IPPS proposed rule, and the average price of currently available stents, we assume a price differential of approximately $1,200. Using an average of 1.5 stents per procedure, we propose to add $1,200 to the median costs established for APC 0104 based on 2001 claims data. We would then calculate a relative payment weight and payment rate for APC 0656 in accordance with the methodology that we discuss in section II.B. of this preamble. By taking this approach, we believe that payment for drug-eluting stents would be balanced between the OPPS and the inpatient PPS, minimizing the incentive to use payment as the basis for determining where to furnish this new technology.

We are taking the extraordinary temporary measure of establishing this APC and pricing it as we propose only because we have been advised by experts that these stents can be expected to revolutionize the provision of coronary care and can be expected to supplant use of existing stents. While the statute contemplates the difficulties of setting OPPS payments for new devices by providing the transitional pass-through mechanism, that mechanism does not work in this circumstance since these devices fall into a previously existing device category and do not meet the test for inclusion in new technology APCs. However, the law permits us to take into account changes in technology and the addition of new factors (See section 1833(t)(9)(A)) of the Act. In this case, we think the impact of this new technology will be so great compared to other new technologies that, to ensure beneficiary access to state-of-the-art medical care, we believe that we need to create new codes and a separate APC, paid based on the best information currently available, to ensure adequate payment to providers and access to care during the first 2 years of the device's existence. To undertake this methodology in other cases, we would

have to be similarly convinced that the technology would not qualify for pass-through payment nor new technology APC payment, that it will revolutionize the provision of care and that it will replace an existing technology. As indicated previously, this payment mechanism would be a temporary one that would exist only until 2005, at which point we would have sufficient data to determine how to pay for these devices under the standard OPPS methodology for setting payment amounts.

We propose to implement payment under APC 0656 effective April 1, 2003, consistent with the effective date for implementation of the drug-eluting DRGs under the OPPS and contingent upon FDA approval by that date. If the FDA grants approval prior to April 1, 2003, hospitals would be paid for insertion of coronary artery drug-eluting stents under APC 104.

We are proposing to establish the new HCPCS codes and APC group for coronary artery drug-eluting stents to allow close tracking of the utilization and costs associated with these services. Once we obtain adequate cost data for coronary artery drug-eluting stents, we propose to incorporate these data into the current CPT codes for coronary stent placement. We invite comments on this proposed methodology for recognizing the additional costs of drug-eluting stents under the OPPS.

It is important to emphasize that we anticipate that the vast majority of new technologies in the future will continue to be routinely incorporated into the existing DRGs or through the new technology add-on payments under the inpatient PPS. Similarly, we expect in the future to continue to make payment under the OPPS for the vast majority of new technologies through the existing provisions for transitional pass-through payments for new devices, drugs, and biologicals and through new technology APCs.

4. Recalibration of APC Weights for 2003

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 to 67827).)

To recalibrate the relative APC weights for services furnished on or after January 1, 2003 and before January 1, 2004, we are proposing to use the same basic methodology that we described in the April 7, 2000 final rule. 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 2003, the most recent available claims data are the approximately 110 million final action claims for hospital outpatient department services furnished on or after January 1, 2001 and before January 1, 2002 and processed through March 2002. Many of these 110 million claims were for services that are not paid under OPPS (such as, clinical laboratory tests). We matched the claims that are paid under OPPS 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.

a. Data Issues

(1) Treatment of “Multiple Procedure” Claims

We have received many requests (through an April Town Hall meeting and other sources of contact with the public) asking that we ensure that the data from claims that contain charges for multiple procedures are included in the data from which we calculate the 2003 relative payment weights. They believe that relying solely on single procedure claims to recalibrate APC weights fails to take into account data for many frequently performed procedures, particularly those commonly performed in combination with other procedures.

We agree that optimally, it is desirable to use the data from as many claims as possible to recalibrate the relative payment weights, including those with multiple procedures. We identified certain multiple procedure claims that could be treated as single procedure claims, enabling us to greatly increase the number of services used to develop the APC payment weights for 2003. However, several inherent features of multiple bill claims prevented us from using all of them to recalibrate the payment weights. We discuss these obstacles below.

There are four scenarios that occur when multiple procedures are billed on a claim that result in our being unable to use all of those claims to recalibrate the APC weights. In each case, the underlying problem is that there are charges on the claim that we are unable to correctly associate with the HCPCS codes for the procedures on the claim (that is, payable HCPCS codes). In general, we are unable to determine with confidence what portion of those charges should be packaged into the charges for each of the procedures on the claim. The different scenarios that we describe below may occur singly or in combination on the same claim.

In the first scenario, costs associated with outpatient hospital services are reported in revenue centers that cannot be associated with individual HCPCS codes because they are ancillary and supportive of some or all services furnished to the beneficiary. We do not require that hospitals assign a HCPCS code to each revenue center and charge or that they split the charges within revenue centers by HCPCS code because they advise us that they are unable to account for costs in this manner. In addition, to collect and report this information would be burdensome and costly.

Where there is only one HCPCS code for a procedure on the claim, we can assign supporting charges in revenue centers to the single HCPCS code. However, when there are two or more HCPCS codes for procedures on the claim, we have no basis for allocating appropriately the ancillary charges reported under revenue centers to the HCPCS codes for separately payable procedures. For example, a claim containing HCPCS codes for a visit and a surgical procedure may show charges under the revenue center for family clinic (517) for the visit and under operating room (360) for the surgery. But in addition, the claim could show charges under the following revenue centers without assigning a HCPCS code to the revenue center: recovery room (710), charge A for sterile supplies (272), charge B for sterile supplies (272), anesthesia (370), and pharmacy (250). If only a single HCPCS code was billed, we could sum the charges shown under the ancillary revenue centers and attribute those charges to the HCPCS code for the single HCPCS code that was billed. However, because there is more than one separately payable code on the claim (clinic visit and surgery), we do not know which charge for sterile supplies should be mapped to the visit and which should be assigned to the surgery. Similarly, there is nothing on the claim to indicate whether the total pharmacy charge is associated with the surgery or with the clinic visit, or split between them. For this type of multiple procedure claim, we have chosen to

exclude the claim from the pool of charges used to calculate median APC costs rather than risk assigning the ancillary revenue center charges incorrectly. This type of multiple procedure claim, often much more complex than this example, accounts for a significant portion of the multiple procedure claims that we are unable to use to recalibrate payment weights.

In the second scenario, we are unable to correctly assign to procedures the charges for HCPCS codes that we package into other procedures. HCPCS codes with status indicator “N” are not paid separately. Rather, the payment for these packaged items or services is recognized in the payment for a service or services billed on the same claim for which there is an APC payment rate. In calculating the median costs, we have to know where to incorporate the charges shown for the HCPCS code with status indicator “N.” When a packaged HCPCS codes is on a claim that also bills for more than one primary procedure (that is, procedures for which we make separate payment), we do not know with which of the procedures the charges for the packaged HCPCS code should be associated, or whether the charges for the packaged HCPCS code should be apportioned on some basis among the multiple primary procedures.

In the third scenario, in the case of multiple surgical procedures, our billing instructions permit hospitals to show charges for only one surgical procedure code although they report more than one surgical HCPCS code. Specifically, this billing convention has long been permitted in Medicare Intermediary Manual section 3626.4B3 and was reconfirmed by Medicare Transmittal A-01-50, which was issued on April 12, 2001

(http://www.hcfa.gov/pubforms/transmit/A0150.pdf)

in response to hospital requests that we clarify whether they were required to create and report charges for each HCPCS code for each surgical service billed on a claim. We believe that to report charges for each HCPCS code for surgical services would have imposed an additional accounting and billing burden on hospitals that had not previously existed. This would have been in addition to the changes to the claims format and instructions that hospitals had recently made to accommodate OPPS and our other initiatives. As in the case of the ancillary services billed under revenue centers, the charges for each HCPCS code for the surgery were not needed to ensure that correct payment was made on the claim (since payment was made based on the code's APC assignment and not on reported charges).

However, because hospitals are permitted to report operating room charges for only one of the multiple surgical procedures on a claim, we are unable to identify a valid means of apportioning the operating room charges to the other procedures that were performed. We are not aware of any research on comparative hospital outpatient department (OPD) resource consumption by HCPCS codes that would indicate how to apportion a total charge among the individual codes on the claim. Moreover, these multiple surgical procedure claims frequently have problems similar to those discussed above in scenario one. Therefore, we are unable to use data from multiple surgery claims that are submitted in this form to calculate APC median costs.

In the fourth scenario are claims with multiple units of the same HCPCS code billed with charges in revenue centers or packaged HCPCS codes. In this case, we cannot determine the appropriate distribution of charges on the claim between the first and subsequent units of the HCPCS code. To approximate the charges that would occur if single rather than multiple units of the HCPCS code were billed, we would have to inflate the charges for the second and subsequent units of the service, which would eliminate the impact of the efficiencies that we believe occur when second and subsequent units of a procedure are performed. There are no data to suggest an appropriate factor to apportion charges for the second and subsequent units.

We considered several methods of apportioning charges from revenue centers and packaged HCPCS codes to enable us to use charge data from multiple procedure claims in the calculation of APC weights, but none of these methods was sufficient to yield cost data that we could be assured were valid. Specifically, we considered dividing the total charges in a revenue center or for a packaged HCPCS code by the number of payable HCPCS codes for multiple procedures on the claim. In the example of a claim for a visit code and a surgical code with the revenue center for sterile supplies billed twice on the same claim, we would sum the charges for sterile supplies, divide the sum by 2, and add the resulting divided charges for sterile supplies to the charges for each HCPCS code. The single pharmacy charge would be divided by 2, and half of the pharmacy charge would be added to each HCPCS code. We rejected this approach because of concern about whether it is likely to be sufficiently accurate to serve as a reasonable means of apportioning charges.

We also considered apportioning the charges among the codes based on physician work relative value units (RVUs) because time is a major factor in the establishment of physician work RVUs under the Medicare fee schedule for physician services. Time may be reflective of the comparative amount of resources used by the hospital for different surgical procedures, particularly charges for operating rooms, recovery rooms, and observation rooms. However, physician work RVUs also depend in part on the intensity and difficulty of the work of a physician in providing a service and would therefore not necessarily reflect accurately the relative resources a hospital would expend for the same procedure. Moreover, we do not believe that time appropriately reflects the use of resources such as pharmacy and supplies.

We then considered apportioning the charges among the codes based on physician nonfacility practice expense RVUs because practice expense RVUs reflect relative resource utilization for these services. However, we have no evidence that the relative practice expenses of physicians correlate with the resources that a hospital would use for the same service. Moreover, physician practice expenses are minimal for the many services typically furnished in a facility rather than the physician's office. For these services, the practice expense RVU reflects only minimal expenses for services, such as the physician's billing costs. They are, therefore, an inadequate proxy for the facility costs, such as supplies, drugs, equipment, nursing services, and overhead costs incurred by hospitals.

In summary, we concluded that the inherent drawbacks of these methodologies would outweigh any potential advantages accrued from the resulting increase in data used to calculate APC median costs. Without evidence to the contrary, we believe that applying these arbitrary methods of apportioning costs to multiple procedure claims would yield results that are less reliable and valid than continuing to rely on single procedure claims in calculating APC median costs.

We solicit public comment on the methods we considered for apportioning the total charges to individual HCPCS codes as described above. We also invite suggestions of other alternative means of apportioning the total costs on multiple procedure claims to the HCPCS codes for the procedures so that we can use more data from multiple procedure claims in the 2004 update of the OPPS.

We also solicit information on existing studies that would provide

comparative hospital outpatient resource inputs by HCPCS code. In addition, we welcome suggestions for studies that we might undertake either to determine the relative value of OPD resources by HCPCS code or to provide a valid means of apportioning the charges among HCPCS codes when multiple surgical procedures are billed on the same claim with a single total charge for all services.

Further, we ask for comments on the feasibility of requiring hospitals to apportion all charges currently shown in revenue centers to the HCPCS codes billed so that we could use all multiple services claims in the calculation of the relative weights. For example, where the patient received multiple surgeries on the same day or received a visit and a procedure on the same day, the hospital would have to create a charge for each billable HCPCS code and that charge would have to encompass all charges for OR, recovery room, pharmacy, supplies, etc. that were relevant to that code. No charges would be billed under revenue centers alone or with packaged HCPCS codes (that is, HCPCS codes having a status indicator of N) since all charges would be reported under associated payable HCPCS codes. There would have to be corollary changes in completion of the cost report. Also, because hospitals must have a uniform charge structure, providers would need to charge all other payers and private pay patients in the same manner as they would be required to charge Medicare.

We are particularly interested in the views of hospitals and billing experts weighing the burden that could be created by these changes in billing rules relative to the potential benefit of calculating more precise OPPS payment rates that incorporate data from multiple procedure claims.

Finally, we solicit information regarding the extent to which efficiencies are realized when multiple services are furnished during the same visit or operative session. We currently discount the APC payment for the second and subsequent procedures performed during a single encounter by 50 percent in the expectation that the same efficiencies of service that are demonstrated to exist in the provision of physician services also exist in the provision of outpatient hospital services. In general, when a second or subsequent service is performed at the same time as an initial service, we believe that the combined resource costs associated with operating room time, recovery room time, anesthesia, supplies, and other services are less than if the procedures were performed separately. However, we are interested in empirical data regarding the extent to which these efficiencies of resource consumption actually occur.

(2) Calendar Year 2002 Charge Data for Pass-Through Device Categories

HCPCS coding for medical devices that qualified for transitional pass-through payment for services furnished in 2001 occurred in two different ways. (A detailed discussion of the provisions authorizing transitional pass-through payments for certain medical devices and drugs and biologicals can be found in section III of this preamble.) From August 1, 2000 until April 1, 2001, claims for medical devices that were paid on a pass-through basis were coded using device specific codes that were often manufacturer specific. BBRA required that, effective April 1, 2001, claims for medical devices eligible for transitional pass-through payment were to be billed using codes that applied to categories of devices. We issued the applicable category codes in Program Memoranda, Transmittals A-01-40 and A-01-41. We posted them on our web site at

http://www.hcfa.gov/pubforms/transmit/A0140.pdf

and

http://www.hcfa.gov/pubforms/transmit/A0141.pdf,

respectively. The change to the use of category codes, rather than device specific codes, simplified coding and also expanded the number of devices that were eligible for transitional pass-through payment. The expansion occurred because devices that fit the categories but that had previously not met the criteria for transitional pass-through payments could now be billed for a transitional pass-through payment.

Moreover, in recognition of the impact of the change on hospital billing and in recognition of the short time between the passage of legislation (December 14, 2000) and the effective date for the new codes (April 1, 2001), we gave hospitals a 90-day grace period during which they could bill using either the device specific codes they had previously been using or the new category codes. For this reason, only services furnished on or after July 1, 2001 were required to be billed using the new device category codes.

We have been advised that during the period in which the 2001 OPPS was in effect, hospitals may not have billed properly for devices eligible for transitional pass-through payments. We understand that the changes in billing format and systems for implementation of the OPPS compounded the problems of billing using the device specific codes during the first 9 months of the OPPS. We have been informed that these problems were further compounded by the creation and requirement to use category codes on and after April 1, 2001. In general, we have been advised that hospitals may have been underpaid for transitional pass-through devices (because they did not bill separately for them and therefore did not get the pass-through payment) and that our data will not correctly show the charges associated with the devices (because the devices were not coded with device category codes on the claim).

We agree that where hospitals failed to show the code for the transitional pass-through device (whether the device specific code or the category code as applicable), they will not have received payment for the device as a transitional pass-through device. For many years, there have been processes in place for hospitals to submit adjustment bills so they can receive payment for all applicable services they furnished if they subsequently determine that their original bills were deficient. Notwithstanding, there is no method by which we can infer a charge on a claim for a service that is not billed by the hospital.

Regarding the impact of the absence of coding for devices on the data from claims submitted for July 2001 and later, we looked at the claims data for a sample of services for which we thought there should have been a device category billed because of the nature of the procedure (for example, insertion of a pacemaker). We found that there were many instances when a device category code was not billed when we would have expected it. However, we found that when we summed the charges for revenue centers with the charges for the procedure on claims where no category code was reported and compared those totals with the sum of charges from claims where both a device category code and the associated procedure code were billed, the results were very similar. From this analysis, we conclude that in many cases, particularly during the first half of the calendar year, hospitals included charges for transitional pass-through devices in the revenue center for supplies. Therefore, we believe cost data for transitional pass-through devices are contained in the charges of most claims, even where they are not separately identified by the code for the device category, which should have been reported.

We believe that this absence of category codes in the claims data and our data analysis, and the issues surrounding multiple procedure claims argue strongly for packaging the cost of these devices into the payment for the procedures with which they were used and to then create weights for

procedures for the 2003 OPPS. Incorrect device coding could lead to skewed weights for the retired transitional pass-through devices, if we were to establish individual APCs for the expired device categories.

We believe that packaging the charges billed under the revenue centers into the charges for the procedures before setting the weights for the APCs will allow us to capture all of the cost data for services in which devices were used which will result in the most valid payment for the APC. This approach assures that the payment rate for the procedure includes accurate payment for the devices used in the procedure. Further discussion of our proposal to package payment for sunsetting transitional pass-through devices is contained in section III.C of this preamble.

b. Description of How Weights Were Calculated for 2003

The methodology we followed to calculate the APC relative payment weights proposed for CY 2003 is as follows:

• We excluded from the data approximately 15 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 end-stage renal disease (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 2001 outpatient bills. The CCRs include operating and capital costs but exclude items paid on a reasonable cost basis.

• We eliminated from the hospital CCR data 301 hospitals that we identified as having reported charges on their cost reports that were not actual charges (for example, a uniform charge applied to 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 3 million claims submitted by the hospitals that we removed or trimmed from the hospital CCR data.

• We eliminated 1.2 million claims from hospitals located in Maryland, Guam, and the U.S. Virgin Islands.

• We matched revenue centers from the remaining universe of approximately 92.2 million claims to CCRs hospitals.

• We separated the 92.2 million claims that we had matched with a cost report into the following three distinct groups: (1) single-procedure claims, (2) multiple-procedure claims, and (3) claims on which we could not identify at least one OPPS covered service. Single-procedure claims are those that include 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 include more than one HCPCS code that could be mapped to an APC. Dividing the claims in this manner yielded approximately 30.4 million single-procedure claims and 20.1 million multiple-procedure claims. Approximately 41.5 million claims without at least one covered OPPS service were set aside.

We converted 10.7 million multiple-procedure claims to single-procedure claims using the following criteria: (1) If a multiple-procedure claim contained lines with a HCPCS code in the pathology series (that is, CPT 80000 series of codes), we treated each of those lines as a single claim. (2) For multiple procedure claims with a packaged HCPCS code (status indicator “N”) on the claim, we ignored line items for chest X-rays (HCPCS codes 71010 and/or 71020) and/or EKGs (HCPCS code 93005) on these claims. If only one procedure (other than HCPCS codes 71010, 71020, and 93005) existed on the claim, we treated it as a single-procedure claim. (3) If the claim had no packaged HCPCS codes and if there were no packaged revenue centers on the claim, we treated each line with a procedure as a single claim if the line item was billed as a single unit. (4) If the claim had no packaged HCPCS codes on the claim but had packaged revenue centers for the procedure, we ignored the line item for chest X-rays and/or EKG codes (as identified above) and if only one HCPCS code remained, we treated the claim as a single procedure claim. We created an additional 31.3 million single-procedure bills through this process, which enabled us to use these data from multiple-procedure claims in calculation of the APC relative payment weights.

• To calculate median costs for services within an APC, we used only single-procedure bills and those multiple procedure bills that we converted into single claims. If a claim had a single code with a zero charge (that would have been considered a single-procedure claim), we did not use it. As we discussed in section II.B.4.a.(1) of this preamble, we did not use multiple-procedure claims that billed more than one separately payable HCPCS code with charges for packaged items and services such as anesthesia, recovery room, or supplies that could not be reliably allocated or apportioned among the primary HCPCS codes on the claim. We have not yet developed what we regard as an acceptable method of using multiple-procedure bills to recalibrate APC weights that minimizes the risk of improperly assigning charges 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 an appropriate cost center did not exist for a given hospital, we crosswalked the revenue center to a secondary cost center when possible, or used 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). We included all charges associated with HCPCS codes that are designated as packaged services (that is, HCPCS codes with the status indicator of “N”).

• To calculate per-service costs, we used the charges shown in revenue centers that contained items integral to performing the service. We observed the packaging provisions set forth in the April 7, 2000 final rule with comment period that were in effect during 2001 (65 FR 18484). For instance, in calculating the cost of a surgical procedure, 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 organs. To determine medical visit costs, we included charges for items such as medical and surgical supplies, drugs, and observation in those instances where they are still packaged. Table 5 lists packaged services by revenue center that we are proposing to use to calculate per-service costs for outpatient services furnished in 2003.

Table 5.—Packaged Services by Revenue Code

Revenue code

Description

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 ACQUISITION

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

569

OTHER MEDICAL SOCIAL SERVICES

621

SUPPLIES INCIDENT TO RADIOLOGY

624

INVESTIGATIONAL DEVICE (IDE)

710

RECOVERY ROOM

719

OTHER RECOVERY ROOM

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

DRUGS REQUIRING SPECIFIC IDENTIFICATION, GENERAL CLASS

631

SINGLE SOURCE DRUG

632

MULTIPLE SOURCE DRUG

633

RESTRICTIVE PRESCRIPTION

762

OBSERVATION ROOM

942

EDUCATION/TRAINING

• 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 proposed FY 2003 hospital inpatient prospective payment system (IPPS) wage index published in the

Federal Register

on May 9, 2002 (67 FR 31602). We used 60 percent to represent our estimate of that portion of costs attributable, on average, to labor. We have used this estimate since the inception of the OPPS and continue to believe that it is appropriate. See 65 FR 18496, the April 7, 2000 final rule for a complete description of how we derived this percentage.

• 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 diagnosis-related group (DRG) weights for the hospital IPPS. 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 in section II.A of this preamble.

• We calculated the median cost for each APC.

• Using the median APC costs, we calculated the relative payment weights for each APC. As in prior years, we scaled all the relative payment weights to APC 0601, Mid-level clinic visit, because it is one of the most frequently performed services in the hospital outpatient setting. 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. Using 2001 data, the median cost for APC 0601 is $56.77.

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 2003 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 2002 relative weights to aggregate payments using the CY 2003 proposed weights. Based on this comparison, we are proposing to make an adjustment of 1.04227 to the weights. The weights that we are proposing for 2003, which incorporate the recalibration adjustments explained in this section, are listed in Addendum A and Addendum B.

5. 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 Act gives the Secretary broad authority to determine the services to be covered and paid for under the OPPS. In the April 7, 2000 final rule, we identified procedures that are typically provided only in an inpatient setting and, therefore, would not be paid by Medicare under the OPPS (65 FR 18455). These procedures comprise what is referred to as the “inpatient list.” The inpatient list specifies those services that are only paid when provided in an inpatient setting. These are services that require inpatient care because of the nature of the procedure, the need for at least 24 hours of postoperative recovery time or monitoring before the patient can be safely discharged, or the underlying physical condition of the patient. As we discussed in the April 7, 2000 and the November 30, 2001 final rules, we use the following criteria when reviewing procedures to determine whether or not they should be moved from the inpatient list and assigned to an APC group for payment under the OPPS:

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

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

• The procedure is related to codes we have already moved off the inpatient list.

We update the inpatient list as often as quarterly through program memoranda to reflect current advances in medical practice. We last updated the inpatient list in the November 30, 2001 final rule. As we discuss in section II.A.2, above, the APC Panel at its January 2002 meeting reviewed certain procedures on the inpatient list for which we had received requests that they be made payable under the OPPS. The Panel recommended that we solicit comments and further information about all these procedures except for CPT code 47001, which they recommended be removed from the inpatient list (see section II.A.2 above for a discussion of this and the other codes that the Panel considered for removal from the inpatient list). These procedures are included in Table 6, with the exception of CPT code 33967, which we are not proposing to pay for under the OPPS for reasons that we explain in section II.A.2.

In preparing this proposed rule to update the OPPS for CY 2003, we compared procedures with status indicator “C” (status indicator “C” is assigned to inpatient procedures that are not payable under the OPPS) to the list of procedures that are currently on the ambulatory surgical center (ASC) list of approved procedures, to procedures that we proposed to add to the ASC list in a proposed rule published in the

Federal Register

on June 12, 1998 (63 FR 32291), and to procedures recommended for addition to the ASC list by commenters in response to the June 12, 1998 proposed rule. We found that there are procedures on the current ASC list, or procedures proposed for addition to the ASC list, or procedures recommended by commenters for addition to the ASC list that are assigned status indicator “C” under the OPPS. A review of 2001 physician claims data also revealed that physicians are performing some of these “C” status indicator procedures on Medicare beneficiaries on an outpatient basis. We concluded that it was appropriate to propose removal of procedures from the OPPS inpatient list that are being performed on an outpatient basis and/or that we had determined could be safely and appropriately performed on a Medicare beneficiary in an ASC under the applicable ASC rules that are set forth in 42 CFR 416.22. We believe that our payment policies for surgical procedures provided in an outpatient hospital setting and in the ASC setting should be consistent to the extent possible within the limitations imposed by statutory or regulatory requirements. So, we propose to add the following criteria for use in reviewing procedures to determine whether they should be removed from the inpatient list and assigned to an APC group for payment under the OPPS:

• We have determined that the procedure is being performed in numerous hospitals on an outpatient basis; or

• We have determined that the procedure can be appropriately and safely performed in an ASC and is on the list of approved ASC procedures or proposed by us for addition to the ASC list.

In addition to the procedures considered by the APC Panel for removal from the inpatient list, Table 6 includes the procedures that we are proposing to be removed from the inpatient list for payment under the OPPS. We applied the criteria discussed above in order to be consistent with the ASC list of approved procedures, and with utilization data that indicate the procedures are being performed on an outpatient basis. We solicit comments on whether the procedures in Table 6 should be paid under the OPPS. We also solicit comments on the APC assignment that we propose for these procedures in the event we determine in the final rule, based on comments, that these procedures would be payable under the OPPS in 2003. We ask that commenters recommending reclassification of a procedure to an APC include evidence (preferably from peer-reviewed medical literature) that the procedure is being performed on an outpatient basis in a safe and effective manner.

Following our review of the comments that we receive about the procedures in Table 6, we propose either to assign a CPT code to an APC for payment under the OPPS or, if the comments do not provide sufficient information and data to enable us to make a decision, to present the comments to the APC Panel at its 2003 meeting.

Table 6.—Procedures on the Inpatient List Proposed for Payment Under the OPPS in CY 2003.

CPT code

Proposed status indicator

Proposed APC

Description

21390

T

0256

OPEN TREATMENT OF ORBITAL FLOOR BLOWOUT FRACTURE; PERIORBITAL APPROACH, WITH ALLOPLASTIC OR OTHER IMPLANT.

22100

T

0208

PARTIAL EXCISION OF POSTERIOR VERTEBRAL COMPONENT (EG, SPINOUS PROCESS, LAMINA OR FACET) FOR INTRINSIC BONY LESION, SINGLE VERTEBRAL SEGMENT; CERVICAL.

22101

T

0208

PARTIAL EXCISION OF POSTERIOR VERTEBRAL COMPONENT (EG, SPINOUS PROCESS, LAMINA OR FACET) FOR INTRINSIC BONY LESION, SINGLE VERTEBRAL SEGMENT; THORACIC.

22102

T

0208

PARTIAL EXCISION OF POSTERIOR VERTEBRAL COMPONENT (EG, SPINOUS PROCESS, LAMINA OR FACET) FOR INTRINSIC BONY LESION, SINGLE VERTEBRAL SEGMENT; LUMBAR.

22103

T

0208

PARTIAL EXCISION OF POSTERIOR VERTEBRAL COMPONENT (EG, SPINOUS PROCESS, LAMINA OR FACET) FOR INTRINSIC BONY LESION, SINGLE VERTEBRAL SEGMENT; EACH ADDITIONAL SEGMENT (LIST SEPARATELY IN ADDITION TO CODE FOR PRIMARY PROCEDURE).

23035

T

0049

INCISION, BONE CORTEX (EG, OSTEOMYELITIS OR BONE ABSCESS), SHOULDER AREA.

23125

T

0051

CLAVICULECTOMY; TOTAL.

23195

T

0050

RESECTION, HUMERAL HEAD.

23395

T

0051

MUSCLE TRANSFER, ANY TYPE, SHOULDER OR UPPER ARM; SINGLE.

23397

T

0052

MUSCLE TRANSFER, ANY TYPE, SHOULDER OR UPPER ARM; MULTIPLE.

23400

T

0050

SCAPULOPEXY (EG, SPRENGELS DEFORMITY OR FOR PARALYSIS).

24150

T

0052

RADICAL RESECTION FOR TUMOR, SHAFT OR DISTAL HUMERUS;.

24151

T

0052

RADICAL RESECTION FOR TUMOR, SHAFT OR DISTAL HUMERUS; WITH AUTOGRAFT (INCLUDES OBTAINING GRAFT).

24152

T

0052

RADICAL RESECTION FOR TUMOR, RADIAL HEAD OR NECK;.

24153

T

0052

RADICAL RESECTION FOR TUMOR, RADIAL HEAD OR NECK; WITH AUTOGRAFT (INCLUDES OBTAINING GRAFT).

25170

T

0052

RADICAL RESECTION FOR TUMOR, RADIUS OR ULNA.

25390

T

0050

OSTEOPLASTY, RADIUS OR ULNA; SHORTENING.

25391

T

0051

OSTEOPLASTY, RADIUS OR ULNA; LENGTHENING WITH AUTOGRAFT.

25392

T

0050

OSTEOPLASTY, RADIUS AND ULNA; SHORTENING (EXCLUDING 64876).

25393

T

0051

OSTEOPLASTY, RADIUS AND ULNA; LENGTHENING WITH AUTOGRAFT.

25420

T

0051

REPAIR OF NONUNION OR MALUNION, RADIUS AND ULNA; WITH AUTOGRAFT (INCLUDES OBTAINING GRAFT).

27035

T

0052

DENERVATION, HIP JOINT, INTRAPELVIC OR EXTRAPELVIC INTRA-ARTICULAR BRANCHES OF SCIATIC, FEMORAL, OR OBTURATOR NERVES.

27216

T

0050

PERCUTANEOUS SKELETAL FIXATION OF POSTERIOR PELVIC RING FRACTURE AND/OR DISLOCATION (INCLUDES ILIUM, SACROILIAC JOINT AND/OR SACRUM).

27235

T

0050

PERCUTANEOUS SKELETAL FIXATION OF FEMORAL FRACTURE, PROXIMAL END, NECK, UNDISPLACED, MILDLY DISPLACED, OR IMPACTED FRACTURE.

31582

T

0256

LARYNGOPLASTY; FOR LARYNGEAL STENOSIS, WITH GRAFT OR CORE MOLD, INCLUDING TRACHEOTOMY.

31785

T

0254

EXCISION OF TRACHEAL TUMOR OR CARCINOMA; CERVICAL.

32201

T

0070

PNEUMONOSTOMY; WITH PERCUTANEOUS DRAINAGE OF ABSCESS OR CYST.

38700

T

0113

SUPRAHYOID LYMPHADENECTOMY.

42842

T

0254

RADICAL RESECTION OF TONSIL, TONSILLAR PILLARS, AND/OR RETROMOLAR TRIGONE; WITHOUT CLOSURE.

43030

T

0253

CRICOPHARYNGEAL MYOTOMY.

47490

T

0152

PERCUTANEOUS CHOLECYSTOSTOMY.

47001

N

BIOPSY OF LIVER, NEEDLE; WHEN DONE FOR INDICATED PURPOSE AT TIME OF OTHER MAJOR PROCEDURE.

62351

T

0208

IMPLANTATION, REVISION OR REPOSITIONING OF TUNNELED INTRATHECAL OR EPIDURAL CATHETER, FOR LONG-TERM MEDICATION ADMINISTRATION VIA AN EXTERNAL PUMP OR IMPLANTABLE RESERVOIR/INFUSION PUMP; WITH LAMINECTOMY.

64820

T

0220

SYMPATHECTOMY; DIGITAL ARTERIES, EACH DIGIT.

69150

T

0252

RADICAL EXCISIONS EXTERNAL AUDITORY CANAL LESION; WITHOUT NECK DISSECTION.

69502

T

0254

MASTOIDECTOMY; COMPLETE.

92986

T

0083

PERCUTANEOUS BALLOON VALVULOPLASTY; AORTIC VALVE.

92987

T

0083

PERCUTANEOUS BALLOON VALVULOPLASTY; MITRAL VALVE.

92990

T

0083

PERCUTANEOUS BALLOON VALVULOPLASTY; PULMONARY VALVE.

92997

T

0081

PERCUTANEOUS TRANSLUMINAL PULMONARY ARTERY BALLOON ANGIOPLASTY; SINGLE VESSEL.

92998

T

0081

PERCUTANEOUS TRANSLUMINAL PULMONARY ARTERY BALLOON ANGIOPLASTY; EACH ADDITIONAL VESSEL (LIST SEPARATELY IN ADDITION TO CODE FOR PRIMARY PROCEDURE)

C. Partial Hospitalization

Payment Methodology

As we discussed in the April 7, 2000 OPPS final rule (65 FR 18452), partial hospitalization is an intensive outpatient program of psychiatric services provided to patients in the place of inpatient care. A partial hospitalization program (PHP) may be provided by a hospital to its outpatients or by a Medicare-certified community mental health center (CMHC). Payment to providers under the OPPS for PHPs represents the provider's overhead costs associated with the program. Because a day of care is the unit that defines the structure and scheduling of partial hospitalization services, effective for services furnished on or after August 1, 2000, we established a per diem payment methodology for the PHP APC. We analyzed the service components billed by hospitals over the course of a billing period and determined the median hospital cost of furnishing a day of partial hospitalization. We were unable to use CMHC data in computing the per diem because up until April 1, 2000, CMHCs were not required to report HCPCS codes. In addition, section 1833(t)(2)(C) of the Act requires that we establish relative payment weights based on median (or mean, at the election of the Secretary) hospital costs determined by 1996 claims and the most recent available cost report data. This analysis resulted in a per diem payment of $202.19 effective August 1, 2000. This amount was updated effective January 1, 2001 and April 1, 2002 to $206.82 and $212.27.

Although we did not use CMHC data in establishing the initial APC for partial hospitalization (or in the updates made since then), in the April 7, 2000 final rule we made a commitment to analyze future data from hospitals and CMHCs to determine if refinements to the per diem are warranted. Based on our review of 2001 claims data submitted under the OPPS, we have developed a payment rate for partial hospitalization following the same methodology used to establish all the APC payment amounts. However, because a day of care is the unit for PHP services, we computed the median cost of furnishing a day of partial hospitalization. Other than the unit of service being a day of care, the method we used to determine median costs for PHP is no different than that used for all other APCs as described in other sections of this proposed rule. The CY 2003 proposed payment rate for the partial hospitalization APC is $256.96 per day, of which $51.39 is the beneficiary's coinsurance.

We used calendar year 2001 bills from both hospitals and CMHCs. We used data from all the hospital bills reporting condition code 41, which identifies the claim as partial hospitalization. Since section 1866(e)(2) of the Act specifies that a CMHC is a provider of service “* * * only with respect to the furnishing of partial hospitalization services * * *,” we used all bills from CMHCs. We used cost-to-charge ratios from the most recently available hospital and CMHC cost reports to develop costs from line item charges reported on bills. Since hospitals and CMHCs are now required to report line item dates of service on claims, we used that data to refine our estimates of line item costs.

We then computed per diem costs by summing the line item costs on each bill and dividing by the number of days on each bill. Using this method of determining costs, preliminary per diem cost estimates for CMHCs were much higher than expected, in many cases more than twice the average per diem for inpatient psychiatric care and more than three times the hospital median PHP per diem cost. The data strongly suggests that the costs were reported incorrectly. We believe that the data are unusable without adjustment.

Closer examination of the CMHC cost report data showed that costs from CMHC finalized cost reports were considerably lower than costs from “as submitted” CMHC cost reports. To account for the difference between settled and as-filed cost report data, we computed the ratio of total final costs to total as-filed costs over a 3-year period (FYs 1998-2000) and calculated an average adjustment factor which we applied to the costs on each claim. The adjusted costs were summed, then divided by the number of days on that bill.

Treatment of Professional Services Under PHP

Section 410.43 describes the conditions and exclusions of partial hospitalization services. That section lists the services that are separately covered and not paid as partial hospitalization services. The list includes—

• Physician services that meet the requirements of 42 CFR 415.102(a) for payment on a fee schedule basis;

• Physician assistant services, as defined in section 1861(s)(2)(K)(i) of the Act;

• Nurse practitioner and clinical nurse specialist services, as defined in section 1861(s)(2)(K)(ii) of the Act;

• Qualified psychologist services, as defined in section 1861(ii) of the Act; and

• Services furnished to SNF residents as defined in 42 CFR 411.15(p).

Based on this section, in the April 7, 2000 OPPS rule, we stated that the APC for partial hospitalization represents the provider's overhead costs, support staff, and the services of clinical social workers (CSWs) and occupational therapists (OTs), whose professional services are considered to be partial hospitalization services for which Medicare payment is made to the provider. Before implementation of the OPPS, the services of CSWs and OTs in a PHP were billed by the hospitals to the fiscal intermediaries and paid on a reasonable cost basis.

We have looked carefully at the differences between the cost experiences of CMHCs and of hospitals with respect to PHP services, as well as how payment is made for other hospital outpatient psychiatric services, to identify areas where improvements can be made in OPPS. One of the areas in which we identified discrepancies was in the coverage of CSW services. The way in which CSW services are currently billed and paid depends upon the circumstances under which CSW services are provided. In some settings, payment for CSW services is part of a bundled payment. In other settings, separate payment for CSW services is made.

Generally, CSW services furnished to hospital outpatients are bundled, which means that only the hospital may bill for such services. However, payment for CSW professional services furnished to hospital outpatients is made under the physician fee schedule. Therefore, the hospital outpatient department bills separately the Part B carrier for CSW services furnished to outpatients who are not in a PHP. CSW professional services are paid at 75 percent of the clinical psychologist fee schedule.

However, when CSWs furnish services to hospital outpatients or a CMHC under a partial hospitalization program, hospitals may not bill separately for the services of a CSW. Instead, for coverage and payment purposes, the services are recognized as partial hospitalization services. Partial hospitalization services are billed by hospitals and CMHCs to the fiscal intermediaries and paid the OPPS PHP APC per diem amount.

The different methodologies for payment of CSW services has proven both confusing and burdensome for hospitals because they must implement separate billing schemes for CSW services depending upon whether an

individual outpatient is admitted to a PHP program or to any other hospital outpatient psychiatric program. We believe that these challenges have resulted in incorrect reporting by hospitals which has led to an under-representation of CSW services in the OPPS PHP APC per diem amount.

To facilitate proper billing and to ensure comparable reporting of costs by hospitals and CMHCs, we are proposing to allow separate payment for CSW services furnished in CMHCs. This means that both hospitals and CMHCs will bill the carrier for CSW services furnished to PHP patients. Therefore, we are proposing to amend § 410.43(b) to add clinical social worker services that meet the requirements of section 1861(hh)(2) of the Act to the list of professional services not considered to be PHP services. We believe this change will allow CSW services to be more appropriately reflected in both settings as part of PHPs.

III. Transitional Pass-Through and Related Payment Issues

A. Background

Section 1833(t)(6) of the Act provides for temporary additional payments or “transitional pass-through payments” for certain medical devices, drugs, and biologicals. As originally enacted by the BBRA, this provision required the Secretary to make additional payments to hospitals for current orphan drugs, as designated under section 526 of the Federal Food, Drug, and Cosmetic Act, Pub. L. 107-186; current drugs, biologic agents, and brachytherapy devices used for the treatment of cancer; and current radiopharmaceutical drugs and biological products.

For those drugs, biologicals, and devices referred to as “current,” the transitional pass-through payment began on the first date the hospital OPPS was implemented (before enactment of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act (BIPA), Pub. L. 106-554, enacted December 21, 2000).

Transitional pass-through payments are also required for certain “new” medical devices, drugs, and biological agents that were not being paid for as a hospital outpatient service as of December 31, 1996 and whose cost is “not insignificant” in relation to the OPPS payment for the procedures or services associated with the new device, drug, or biological. Under the statute, transitional pass-through payments are to be made for at least 2 years but not more than 3 years.

Section 1833(t)(6)(B)(i) of the Act required that we establish by April 1, 2001, initial categories to be used for purposes of determining which medical devices are eligible for transitional pass-through payments. Section 1833(t)(6)(B)(i)(II) of the Act explicitly authoriz

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