# Medicare Program; Proposed Revisions to Payment Policies Under the Physician Fee Schedule, and Other Part B Payment Policies for CY 2008; Proposed Revisions to the Payment Policies of Ambulance Services Under the Ambulance Fee Schedule for CY 2008; and the Proposed Elimination of the E-Prescribing Exemption for Computer-Generated Facsimile Transmissions > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A07-3274 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** July 12, 2007 - **Citation:** 72 FR 38122 ## Text DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare & Medicaid Services 42 CFR Parts 409, 410, 411, 413, 414, 415, 418, 423, 424, 482, 484, 485, and 491 [CMS-1385-P] RIN 0938-AO65 Medicare Program; Proposed Revisions to Payment Policies Under the Physician Fee Schedule, and Other Part B Payment Policies for CY 2008; Proposed Revisions to the Payment Policies of Ambulance Services Under the Ambulance Fee Schedule for CY 2008; and the Proposed Elimination of the E-Prescribing Exemption for Computer-Generated Facsimile Transmissions AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS. ACTION: Proposed rule. SUMMARY: This proposed rule would address certain provisions of the Tax Relief and Health Care Act of 2006, as well as make other proposed changes to Medicare Part B payment policy. We are proposing these changes to ensure that our payment systems are updated to reflect changes in medical practice and the relative value of services. This proposed rule also discusses refinements to resource-based practice expense (PE) relative value units (RVUs); geographic practice cost indices (GPCI) changes; malpractice RVUs; requests for additions to the list of telehealth services; several coding issues including additional codes from the 5-Year Review; payment for covered outpatient drugs and biologicals; the competitive acquisition program (CAP); clinical lab fee schedule issues; payment for renal dialysis services; performance standards for independent diagnostic testing facilities; expiration of the physician scarcity area (PSA) bonus payment authorized by section 413 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA); conforming and clarifying changes for comprehensive outpatient rehabilitation facilities (CORFs); a process for updating the drug compendia at section 1861(t)(2)(B) of the Social Security Act (the Act); physician self-referral issues; beneficiary signature for ambulance transport services; durable medical equipment (DME) update; the chiropractic services demonstration; a Medicare economic index (MEI) data change; technical corrections; issues related to therapy services; revisions to the ambulance fee schedule; the ambulance inflation factor for CY 2008; and the proposal to eliminate the exemption for computer-generated facsimile transmissions from the National Council for Prescription Drug Programs (NCPDP) SCRIPT standard for transmitting prescription and certain prescription-related information for Part D eligible individuals. DATES: To be assured consideration, except for comments on section II.M.10 of the preamble, comments must be received at one of the adresses provided below, no later than 5 p.m. on Friday, August 31, 2007. Comments on section II.M.10 “Alternative Criteria for Satisfying Certain Exceptions”, of the preamble must be received by no later than 5 p.m. on Friday, September 7, 2007. ADDRESSES: In commenting, please refer to file code CMS-1385-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission. You may submit comments in one of four ways (no duplicates, please): 1. Electronically. You may submit electronic comments on specific issues in this regulation to http://www.cms.hhs.gov/eRulemaking. Click on the link “Submit electronic comments on CMS regulations with an open comment period.” (Attachments should be in Microsoft Word, WordPerfect, or Excel; however, we prefer Microsoft Word.) 2. By regular mail. You may mail written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1385-P, P.O. Box 8018, Baltimore, MD 21244-8018. Please allow sufficient time for mailed comments to be received before the close of the comment period. 3. By express or overnight mail. You may send written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1385-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850. 4. By hand or courier. If you prefer, you may deliver (by hand or courier) your written comments (one original and two copies) before the close of the comment period to one of the following addresses. If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members. Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 21244-1850. (Because access to the interior of the 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 received after the comment period. Submission of comments on paperwork requirements. You may submit comments on this document's paperwork requirements by mailing your comments to the addresses provided at the end of the “Collection of Information Requirements” section in this document. For information on viewing public comments, see the beginning of the SUPPLEMENTARY INFORMATION section. FOR FURTHER INFORMATION CONTACT: Pam West (410) 786-2302 for issues related to practice expense and changes to the comprehensive outpatient rehabilitation facility. Rick Ensor (410) 786-5617 for issues related to practice expense methodology. Stephanie Monroe (410) 786-6864 for issues related to the geographic practice cost index and malpractice RVUs. Craig Dobyski (410) 786-4584 for issues related to list of telehealth services. Ken Marsalek (410) 786-4502 for issues related to the DRA imaging cap. Catherine Jansto (410) 786-7762 for issues related to payment for covered outpatient drugs and biologicals. Edmund Kasaitis (410) 786-0477 for issues related to the Competitive Acquisition Program (CAP) for part B drugs. Anita Greenberg (410) 786-4601 for issues related to the clinical laboratory fee schedule. Henry Richter (410) 786-4562 for issues related to payments for end-stage renal disease facilities. August Nemec (410) 786-0612 for issues related to independent diagnostic testing facilities. Karen Rinker (410) 786-0189 for issues related to the drug compendia. David Walczak (410) 786-4475 for issues related to reassignment and physician self-referral rules for diagnostic tests and beneficiary signature for ambulance transport. Lisa Ohrin (410) 786-4565 for issues related to physician self-referral rules. Bob Kuhl (410) 786-4597 for issues related to the DME update. Rachel Nelson (410) 786-1175 for issues related to the quality reporting system for physician payment for CY 2008. Mary Ciccanti (410) 786-3107 for issues related to the reporting of anemia quality indicators. James Menas (410) 786-4507 for issues related to payment for physician pathology services. Dorothy Shannon (410) 786-3396 for issues related to the outpatient therapy cap. Drew Morgan (410) 786-2543 for issues related to the E-Prescribing Exemption for Computer-Generated Facsimile Transmissions. Roechel Kujawa (410) 786-9111 or Anne Tayloe (410) 786-4546 for issues related to the ambulance fee schedule. Diane Milstead (410) 786-3355 or Gaysha Brooks (410) 786-9649 for all other issues. SUPPLEMENTARY INFORMATION: Submitting Comments: We welcome comments from the public on all issues set forth in this rule to assist us in fully considering issues and developing policies. You can assist us by referencing the file code [CMS-1385-P] and the specific “issue identifier” that precedes the section on which you choose to comment. Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received: http://www.cms.hhs.gov/eRulemaking. Click on the link “Electronic Comments on CMS Regulations” on that Web site to view public comments. Comments received timely will also be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, 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, phone 1-800-743-3951. To assist readers in referencing sections contained in this preamble, we are providing the following table of contents. Some of the issues discussed in this preamble affect the payment policies, but do not require changes to the regulations in the Code of Federal Regulations. Information on the regulation's impact appears throughout the preamble and is not exclusively in section VI. Table of Contents I. Background A. Development of the Relative Value System 1. Work RVUs 2. Practice Expense Relative Value Units (PE RVUs) 3. Resource-Based Malpractice RVUs 4. Refinements to the RVUs 5. Adjustments to RVUs Are Budget Neutral B. Components of the Fee Schedule Payment Amounts C. Most Recent Changes to Fee Schedule II. Provisions of the Proposed Regulation Related to the Physician Fee Schedule A. Resource-Based Practice Expense (PE) Relative Value Units (RVUs) 1. Current Methodology 2. PE Proposals for CY 2008 B. Geographic Practice Cost Indices (GPCIs) 1. GPCI Update 2. Payment Localities C. Malpractice (MP) RVUs (TC/PC Issue) D. Medicare Telehealth Services 1. Requests for Adding Services to the List of Medicare Telehealth Services 2. Submitted Requests for Addition to the List of Telehealth Services E. Specific Coding Issues Related to PFS 1. Reduction in the Technical Component (TC) for Imaging Services Under the PFS to the Outpatient Department (OPD) Payment Amount 2. Application of Multiple Procedure Reduction for Mohs Micrographic Surgery (CPT Codes 17311 Through 17315) 3. Payment for Intravenous Immune Globulin (IVIG) Add-On Code for Preadmission-Related Services 4. Additional Codes From the 5-Year Review of Work RVUs 5. Anesthesia Coding (Part of 5-Year Review) 6. Reporting of Cardiac Rehabilitation Services F. Part B Drug Payment 1. Average Sales Price (ASP) Issues 2. Competitive Acquisition Program (CAP) Issues G. Issues Related to the Clinical Lab Fee Schedule 1. Date of Service for the TC of Physician Pathology Services (§ 414.510) 2. New Clinical Diagnostic Laboratory Test (§ 414.508) H. Proposed Revisions Related to Payment for Renal Dialysis Services Furnished by End-Stage Renal Disease (ESRD) Facilities 1. CY 2005 Revisions 2. CY 2006 Revisions 3. CY 2007 Updates 4. Provisions of This Proposed Rule I. Independent Diagnostic Testing Facility (IDTF) Issues 1. Proposed Revisions of Existing IDTF Performance Standards 2. Proposed New IDTF Standards J. Expiration of MMA Section 413 Provisions for Physician Scarcity Area (PSA) K. Comprehensive Outpatient Rehabilitation Facility (CORF) Issues 1. Requirements for Coverage of CORF Services—Plan of Treatment (§ 410.105(c)) 2. Included Services (§ 410.100) 3. Physician Services (§ 410.100(a)) 4. Clarifications of CORF Respiratory Therapy Services 5. Social and Psychological Services 6. Nursing Care Services 7. Drugs and Biologicals 8. Supplies and DME 9. Clarifications and Payment Updates for Other CORF Services 10. Cost-Based Payment (§ 413.1) 11. Payment for Comprehensive Outpatient Rehabilitation Facility (CORF) Services 12. Vaccines L. Compendia for Determination of Medically-Accepted Indications for Off-Label Uses of Drugs and Biologicals in an Anti-Cancer Chemotherapeutic Regimen (§ 414.930) 1. Background 2. Process for Determining Changes to the Compendia List M. Physician Self-Referral Issues 1. Changes to Reassignment and Physician Self-Referral Rules Relating to Diagnostic Tests (Anti-Markup Provision) 2. Burden of Proof 3. In-Office Ancillary Services Exception 4. Obstetrical Malpractice Insurance Subsidies 5. Unit-of-Service (per click) Payments in Space and Equipment Leases 6. Period of Disallowance for Noncompliant Financial Relationships 7. Ownership or Investment Interest in Retirement Plans 8. “Set in Advance” and Percentage-Based Compensation Arrangements 9. Stand in the Shoes 10. Alternative Criteria for Satisfying Certain Exceptions 11. Services Furnished “Under Arrangements” N. Beneficiary Signature for Ambulance Transport Services O. Update to Fee Schedules for Class III DME for CYs 2007 and 2008 1. Background 2. Proposed Update to Fee Schedule P. Discussion of Chiropractic Services Demonstration Q. Technical Corrections 1. Particular Services Excluded From Coverage (§ 411.15(a)) 2. Medical Nutrition Therapy (§ 410.132(a)) 3. Payment Exception: Pediatric Patient Mix (§ 413.84) 4. Diagnostic X-Ray Tests, Diagnostic Laboratory Tests, and Other Diagnostic Tests: Conditions (§ 410.32(a)(1)) R. Percentage Change in the Medicare Economic Index (MEI) S. Other Issues 1. Recalls and Replacement Devices 2. Therapy Standards and Requirements 3. Proposed Elimination of the Exemption for Computer-Generated Facsimile Transmission From the National Council for Prescription Drug Programs (NCPDP) SCRIPT Standard for Transmitting Prescription and Certain Prescription Related Information for Part D Eligible Individuals T. Division B of the Tax Relief and Health Care Act of 2006—Medicare Improvements and Extension Act of 2006 (Pub. L. 109-432) (MIEA-TRHCA) 1. Section 101(b)—Physician Quality Reporting Initiative (PQRI) 2. Section 110—Reporting of Anemia Quality Indicators (§ 414.707(b)) 3. Section 104—Extension of Treatment of Certain Physician Pathology Services Under Medicare 4. Section 201—Extension of Therapy Cap Exception Process 5. Section 101(d)—Physician Assistance and Quality Initiative (PAQI) Fund 6. Section 108—Payment Process Under the Competitive Acquisition Program (CAP) III. Fee Schedule for Payment of Ambulance Services Update for CY 2007; Ambulance Inflation Factor Update for CY 2008; and Proposed Revisions to the Publication of the Ambulance Fee Schedule (§ 414.620) A. History of Medicare Ambulance Services 1. Statutory Coverage of Ambulance Services 2. Medicare Regulations for Ambulance Services 3. Transition to National Fee Schedule B. Ambulance Inflation Factor (AIF) During the Transition Period C. Ambulance Inflation Factor (AIF) for CY 2008 D. Proposed Revisions to the Publication of the Ambulance Fee Schedule (§ 414.620) IV. Collection of Information Requirements V. Response to Comments VI. Regulatory Impact Analysis Regulation Text Addendum A—Explanation and Use of Addendum B Addendum B—2008 Relative Value Units and Related Information Used in Determining Medicare Payments for 2008 Addendum C—Codes for Which We Received PERC Recommendations on PE Direct Inputs Addendum D—Proposed 2008 Geographic Adjustment Factors (GAFs) Addendum E—Proposed 2008* Geographic Practice Cost Indices (GPCIs) by State and Medicare Locality Addendum F—CPT/HCPCS Imaging Codes Defined by Section 5102(b) of the DRA Addendum G—FY 2008 Wage Index for Urban Areas Based On CBSA Labor Market Areas Addendum H—FY 2008 Wage Index based on CBSA Labor Market Areas for Rural Areas Acronyms In addition, because of the many organizations and terms to which we refer by acronym in this final rule with comment period, we are listing these acronyms and their corresponding terms in alphabetical order below: AAA Abdominal aortic aneurysm AAP Average acquisition price ACOTE Accreditation Council for Occupational Therapy Education ACR American College of Radiology AFROC Association of Freestanding Radiation Oncology Centers AHFS-DI American Hospital Formulary Service-Drug Information AHRQ Agency for Healthcare Research and Quality (HHS) AIF Ambulance inflation factor AMA American Medical Association AMA-DE American Medical Association Drug Evaluations AMP Average manufacturer price AOTA American Occupational Therapy Association APC Ambulatory payment classification APTA American Physical Therapy Association ASA American Society of Anesthesiologists ASC Ambulatory surgical center ASP Average sales price ASTRO American Society for Therapeutic Radiology and Oncology ATA American Telemedicine Association AWP Average wholesale price BBA Balanced Budget Act of 1997 (Pub. L. 105-33) BBRA [Medicare, Medicaid and State Child Health Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-113) BIPA Medicare, Medicaid, and SCHIP Benefits Improvement Protection Act of 2000 BLS Bureau of Labor Statistics BMD Bone mineral density BMI Body mass index BMM Bone mass measurement BN Budget neutrality BSA Body surface area CAD Computer-aided detection CAH Critical access hospital CAP Competitive acquisition program CBSA Core-Based Statistical Area CEM Cardiac event monitoring CF Conversion factor CFR Code of Federal Regulations CMA California Medical Association CMS Centers for Medicare & Medicaid Services CNS Clinical nurse specialist CORF Comprehensive Outpatient Rehabilitation Facility COTA Certified Occupational Therapy Assistant CPEP Clinical Practice Expert Panel CPI Consumer Price Index CPI-U Consumer price index for urban customers CPT (Physicians') Current Procedural Terminology (4th Edition, 2002, copyrighted by the American Medical Association) CRT-D Cardiac resynchronization therapy defibrillator CT Computed tomography CTA Computed tomographic angiography CY Calendar year DEXA Dual energy x-ray absorptiometry DHS Designated health services DME Durable medical equipment DMEPOS Durable medical equipment, prosthetics, orthotics, and supplies DO Doctor of Osteopathy DRA Deficit Reduction Act of 2005 (Pub. L. 109-432) E/M Evaluation and management ECI Employment cost index EHR Electronic health record EPC [Duke] Evidence-based Practice Centers EPO Erythopoeitin ESRD End stage renal disease F&C Facts and Comparisons FAW Furnish as written FAX Facsimile FDA Food and Drug Administration (HHS) FMR Fair market rents FQHC Federally qualified health center FR Federal Register GAF Geographic adjustment factor GAO General Accounting Office GII Global Insight, Inc. GPO Group purchasing organization GPCI Geographic practice cost index HCPAC Health Care Professional Advisory Committee HCPCS Healthcare Common Procedure Coding System HCRIS Healthcare Cost Report Information System HIPAA Health Insurance Portability and Accountability Act of 1996 (Pub. L. 104-191) HHA Home health agency HHS [Department of] Health and Human Services HIT Health information technology HMO Health maintenance organization HPSA Health Professional Shortage Area HRSA Health Resources Services Administration (HHS) HUD [Department of] Housing and Urban Development ICD Implantable cardioverter-defibrillator ICF Intermediate care facilities IDTF Independent diagnostic testing facility IFC Interim final rule with comment period IOTED International Occupational Therapy Eligibility Determination IPPE Initial preventive physical examination IPPS Inpatient prospective payment system IV Intravenous IVIG Intravenous immune globulin IWPUT Intra-service work per unit of time JCAAI Joint Council of Allergy, Asthma, and Immunology LPN Licensed practical nurse MA Medicare Advantage MA-PD Medicare Advantage-Prescription Drug Plans MD Medical doctor MedCAC Medicare Evidence Development and Coverage Advisory Committee (formerly the Medicare Coverage Advisory Committee (MCAC)) MedPAC Medicare Payment Advisory Commission MEI Medicare Economic Index MIEA-TRHCA Medicare Improvements and Extension Act of 2006 (That is, Division B of the Tax Relief and Health Care Act of 2006 (TRHCA)) MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. 108-173) MNT Medical nutrition therapy MP Malpractice MRA Magnetic resonance angiography MRI Magnetic resonance imaging MSA Metropolitan statistical area MSP Medicare Secondary Payer MSVP Multi-specialty visit package NBCOT National Board for Certification in Occupational Therapy, Inc. NCCN National Comprehensive Cancer Network NCPDP National Council for Prescription Drug Programs NCQDIS National Coalition of Quality Diagnostic Imaging Services NDC National drug code NEMC New England Medical Center NISTA National Institute of Standards and Technology Act NLA National limitation amount NP Nurse practitioner NPP Nonphysician practitioners NQF National Quality Forum NTTAA National Technology Transfer and Advancement Act of 1995 (Pub. L. 104-113) OACT [CMS'] Office of the Actuary OBRA Omnibus Budget Reconciliation Act OIG Office of Inspector General OMB Office of Management and Budget OPD  Outpatient Department OPPS Outpatient prospective payment system OPT Outpatient physical therapy OSCAR Online Survey and Certification and Reporting PA Physician assistant PC Professional component PCF Patient compensation fund PDP Prescription Drug Plan PE Practice Expense PE/HR Practice expense per hour PEAC Practice Expense Advisory Committee PECOS Provider Enrollment, Chain, and Ownership System PERC Practice Expense Review Committee PET Positron emission tomography PFS Physician Fee Schedule PLI Professional liability insurance PPI Producer price index PPS Prospective payment system PQRI Physician Quality Reporting Initiative PRA Paperwork Reduction Act PSA Physician scarcity areas PT  Physical therapy PT/INR Prothrombin time, international normalized ratio RFA  Regulatory Flexibility Act RHC Rural health clinic RIA  Regulatory impact analysis RN Registered nurse RT Respiratory therapist RUC [AMA's Specialty Society] Relative (Value) Update Committee RVU Relative value unit SBA Small Business Administration SGR Sustainable growth rate SLP Speech-language pathology SMS [AMA's] Socioeconomic Monitoring System SNF Skilled nursing facility STS Society of Thoracic Surgeons TA Technology Assessment TC  Technical Component TENS Transcutaneous electric nerve stimulator TRHCA Tax Relief and Health Care Act of 2006 (Pub. L. 109-432) USP-DI United States Pharmacopoeia-Drug Information WAC Wholesale acquisition cost WAMP Widely available market price Wet AMD Exudative age-related macular degeneration WFOT World Federation of Occupational Therapists I. Background [If you choose to comment on issues in this section, please include the caption “BACKGROUND” at the beginning of your comments.] Since January 1, 1992, Medicare has paid for physicians' services under section 1848 of the Social Security Act (the Act), “Payment for Physicians' Services.” The Act requires that payments under the physician fee schedule (PFS) be based on national uniform relative value units (RVUs) based on the resources used in furnishing a service. Section 1848(c) of the Act requires that national RVUs be established for physician work, practice expense (PE), and malpractice expense. Before the establishment of the resource-based relative value system, Medicare payment for physicians' services was based on reasonable charges. A. Development of the Relative Value System 1. Work RVUs The concepts and methodology underlying the PFS were enacted as part of the Omnibus Budget Reconciliation Act (OBRA) of 1989, Pub. L. 101-239, and OBRA 1990, (Pub. L. 101-508). The final rule, published November 25, 1991 (56 FR 59502), set forth the fee schedule for payment for physicians' services beginning January 1, 1992. Initially, only the physician work RVUs were resource-based, and the PE and malpractice RVUs were based on average allowable charges. The physician work RVUs established for the implementation of the fee schedule in January 1992 were developed with extensive input from the physician community. A research team at the Harvard School of Public Health developed the original physician work RVUs for most codes in a cooperative agreement with the Department of Health and Human Services (HHS). In constructing the code-specific vignettes for the original physician work RVUs, Harvard worked with panels of experts, both inside and outside the Federal government, and obtained input from numerous physician specialty groups. Section 1848(b)(2)(B) of the Act specifies that the RVUs for anesthesia services are based on RVUs from a uniform relative value guide. We established a separate conversion factor (CF) for anesthesia services, and we continue to utilize time units as a factor in determining payment for these services. As a result, there is a separate payment methodology for anesthesia services. We establish physician work RVUs for new and revised codes based on recommendations received from the American Medical Association's (AMA) Specialty Society Relative Value Update Committee (RUC). 2. Practice Expense Relative Value Units (PE RVUs) Section 121 of the Social Security Act Amendments of 1994 (Pub. L. 103-432), enacted on October 31, 1994, amended section 1848(c)(2)(C)(ii) of the Act and required us to develop resource-based PE RVUs for each physician's service beginning in 1998. We were to consider general categories of expenses (such as office rent and wages of personnel, but excluding malpractice expenses) comprising PEs. Section 4505(a) of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33), amended section 1848(c)(2)(C)(ii) of the Act to delay implementation of the resource-based PE RVU system until January 1, 1999. In addition, section 4505(b) of the BBA provided for a 4-year transition period from charge-based PE RVUs to resource-based RVUs. We established the resource-based PE RVUs for each physician's service in a final rule, published November 2, 1998 (63 FR 58814), effective for services furnished in 1999. Based on the requirement to transition to a resource-based system for PE over a 4-year period, resource-based PE RVUs did not become fully effective until 2002. This resource-based system was based on two significant sources of actual PE data: The Clinical Practice Expert Panel (CPEP) data and the AMA's Socioeconomic Monitoring System (SMS) data. The CPEP data were collected from panels of physicians, practice administrators, and nonphysicians (for example, registered nurses (RNs)) nominated by physician specialty societies and other groups. The CPEP panels identified the direct inputs required for each physician's service in both the office setting and out-of-office setting. We have since refined and revised these inputs based on recommendations from the RUC. The AMA's SMS data provided aggregate specialty-specific information on hours worked and PEs. Separate PE RVUs are established for procedures that can be performed in both a nonfacility setting, such as a physician's office, and a facility setting, such as a hospital outpatient department. The difference between the facility and nonfacility RVUs reflects the fact that a facility typically receives separate payment from Medicare for its costs of providing the service, apart from payment under the PFS. The nonfacility RVUs reflect all of the direct and indirect PEs of providing a particular service. Section 212 of the Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113) directed the Secretary of Health and Human Services (the Secretary) to establish a process under which we accept and use, to the maximum extent practicable and consistent with sound data practices, data collected or developed by entities and organizations to supplement the data we normally collect in determining the PE component. On May 3, 2000, we published the interim final rule (65 FR 25664) that set forth the criteria for the submission of these supplemental PE survey data. The criteria were modified in response to comments received, and published in the Federal Register (65 FR 65376) as part of a November 1, 2000 final rule. The PFS final rules published in 2001 and 2003, respectively, (66 FR 55246 and 68 FR 63196) extended the period during which we would accept these supplemental data through March 1, 2005. In CY 2007 PFS final rule with comment period (71 FR 69624), we revised the methodology for calculating PE RVUs beginning in CY 2007 and provided for a 4-year transition for the new PE RVUs under this new methodology. We will continue to evaluate this policy and proposed necessary revisions through future rulemaking. 3. Resource-Based Malpractice (MP) RVUs Section 4505(f) of the BBA amended section 1848(c) of the Act to require us to implement resource-based malpractice (MP) RVUs for services furnished on or after 2000. The resource-based MP RVUs were implemented in the PFS final rule published November 2, 1999 (64 FR 59380). The MP RVUs were based on malpractice insurance premium data collected from commercial and physician-owned insurers from all the States, the District of Columbia, and Puerto Rico. 4. Refinements to the RVUs Section 1848(c)(2)(B)(i) of the Act requires that we review all RVUs no less often than every 5 years. The first 5-Year Review of the physician work RVUs was effective in 1997, published on November 22, 1996 (61 FR 59489). The second 5-Year Review went into effect in 2002, published in the CY 2002 PFS final rule (66 FR 55246). The third 5-Year Review of physician work RVUs went into effect on January 1, 2007 and was published in the CY 2007 PFS final rule with comment period (71 FR 69624) (although we note that this proposed rule contains certain additional proposals relating to the third 5-Year Review). In 1999, the AMA's RUC established the Practice Expense Advisory Committee (PEAC) for the purpose of refining the direct PE inputs. Through March 2004, the PEAC provided recommendations to CMS for over 7,600 codes (all but a few hundred of the codes currently listed in the AMA's Current Procedural Terminology (CPT) codes). As part of the CY 2007 PFS final rule with comment period (71 FR 69624), we implemented a new methodology for determining resource-based PE RVUs and are transitioning this over a 4-year period. In the CY 2005 PFS final rule with comment period (69 FR 66236), we implemented the first 5-Year Review of the malpractice RVUs (69 FR 66263). 5. Adjustments to RVUs Are Budget Neutral Section 1848(c)(2)(B)(ii)(II) of the Act provides that adjustments in RVUs for a year may not cause total PFS payments to differ by more than $20 million from what they would have been if the adjustments were not made. In accordance with section 1848(c)(2)(B)(ii)(II) of the Act, if adjustments to RVUs cause expenditures to change by more than $20 million, we make adjustments to ensure that expenditures do not increase or decrease by more than $20 million. As explained in the CY 2007 PFS final rule with comment period (71 FR 69624), due to the increase in work RVUs resulting from the third 5-Year Review of physician work RVUs, we are applying a separate budget neutrality (BN) adjustor to the work RVUs for services furnished during 2007. This approach is consistent with the method we use to make BN adjustments to the PE RVUs to reflect the changes in these PE RVUs. B. Components of the Fee Schedule Payment Amounts To calculate the payment for every physician service, the components of the fee schedule (physician work, PE, and MP RVUs) are adjusted by a geographic practice cost index (GPCI). The GPCIs reflect the relative costs of physician work, PE, and malpractice insurance in an area compared to the national average costs for each component. Payments are converted to dollar amounts through the application of a CF, which is calculated by the Office of the Actuary (OACT) and is updated annually for inflation. The formula for calculating the Medicare fee schedule amount for a given service and fee schedule area can be expressed as: Payment = [(RVU work × budget neutrality adjuster × work GPCI) + (RVU PE × PE GPCI) + (MP RVU × MP GPCI)] × CF. C. Most Recent Changes to the Fee Schedule The CY 2007 PFS final rule with comment period (71 FR 69624) addressed certain provisions of the Deficit Reduction Act of 2005 (Pub. L. 109-432) (DRA) and made other changes to Medicare Part B payment policy to ensure that our payment systems are updated to reflect changes in medical practice and the relative value of services. This final rule with comment period also discussed GPCI changes; requests for additions to the list of telehealth services; payment for covered outpatient drugs and biologicals; payment for renal dialysis services; policies related to private contracts and opt-out; policies related to bone mass measurement (BMM) services, independent diagnostic testing facilities (IDTFs), the physician self-referral prohibition; laboratory billing for the technical component (TC) of physician pathology services; the clinical laboratory fee schedule; certification of advanced practice nurses; health information technology, the health care information transparency initiative; updated the list of certain services subject to the physician self-referral prohibitions, finalized ASP reporting requirements, and codified Medicare's longstanding policy that payment of bad debts associated with services paid under a fee schedule/charge-based system is not allowable. We also finalized the CY 2006 interim RVUs and issued interim RVUs for new and revised procedure codes for CY 2007. In addition, the CY 2007 PFS final rule with comment period included revisions to payment policies under the fee schedule for ambulance services and announced the ambulance inflation factor (AIF) update for CY 2007. In accordance with section 1848(d)(1)(E)(i) of the Act, we also announced that the PFS update for CY 2007 is −5.0 percent, the initial estimate for the sustainable growth rate (SGR) for CY 2007 is 1.8 percent and the CF for CY 2007 is $35.9848. However, subsequent to publication of the CY 2007 PFS final rule with comment period, section 101(a) of Division B, Title I of the Tax Relief and Health Care Act of 2006 (Pub. L. 109-432) (MIEA-TRHCA), which was enacted on December 22, 2006, amended section 1848(d) of the Act. [Division B of the Tax Relief and Health Care Act of 2006 is entitled Medicare and Other Health Provisions and its short title is the Medicare Improvements and Extension Act of 2006. Therefore, it is hereinafter referred to as “MIEA-TRHCA”.] As a result of this statutory change the CF of $37.8975 was maintained for CY 2007. II. Provisions of the Proposed Regulation Related to the Physician Fee Schedule A. Resource-Based Practice Expense (PE) Relative Value Units (RVUs) [If you choose to comment on issues in this section, please include the caption “RESOURCE-BASED PE RVUs” at the beginning of your comments.] Practice expense (PE) is the portion of the resources used in furnishing the service that reflects the general categories of physician and practitioner expenses, such as office rent and personnel wages but excluding malpractice expenses, as specified in section 1848(c)(1)(B) of the Act. Section 121 of the Social Security Amendments of 1994 (Pub. L. 103-432), enacted on October 31, 1994, required CMS to develop a methodology for a resource-based system for determining PE RVUs for each physician's service. Until that time, PE RVUs were based on historical allowed charges. This legislation stated that the revised PE methodology must consider the staff, equipment, and supplies used in the provision of various medical and surgical services in various settings beginning in 1998. The Secretary has interpreted this to mean that Medicare payments for each service would be based on the relative PE resources typically involved with furnishing the service. The initial implementation of resource-based PE RVUs was delayed from January 1, 1998, until January 1, 1999, by section 4505(a) of the BBA. In addition, section 4505(b) of the BBA required that the new payment methodology be phased in over 4 years, effective for services furnished in CY 1999, and fully effective in CY 2002. The first step toward implementation of the statute was to adjust the PE values for certain services for CY 1998. Section 4505(d) of the BBA required that, in developing the resource-based PE RVUs, the Secretary must: • Use, to the maximum extent possible, generally-accepted cost accounting principles that recognize all staff, equipment, supplies, and expenses, not solely those that can be linked to specific procedures and actual data on equipment utilization. • Develop a refinement method to be used during the transition. • Consider, in the course of notice and comment rulemaking, impact projections that compare new proposed payment amounts to data on actual physician PE. In CY 1999, we began the 4-year transition to resource-based PE RVUs utilizing a “top-down” methodology whereby we allocated aggregate specialty-specific practice costs to individual procedures. The specialty-specific PEs were derived from the American Medical Association's (AMA's) Socioeconomic Monitoring Survey (SMS). In addition, under section 212 of the BBRA, we established a process extending through March 2005 to supplement the SMS data with data submitted by a specialty. The aggregate PEs for a given specialty were then allocated to the services furnished by that specialty on the basis of the direct input data (that is, the staff time, equipment, and supplies) and work RVUs assigned to each CPT code. For CY 2007, we implemented a new methodology for calculating PE RVUs. Under this new methodology, we use the same data sources for calculating PE, but instead of using the “top-down” approach to calculate the direct PE RVUs, under which the aggregate direct and indirect costs for each specialty are allocated to each individual service, we now utilize a “bottom-up” approach to calculate the direct costs. Under the “bottom up” approach, we determine the direct PE by adding the costs of the resources (that is, the clinical staff, equipment, and supplies) typically required to provide each service. The costs of the resources are calculated using the refined direct PE inputs assigned to each CPT code in our PE database, which are based on our review of recommendations received from the AMA's Relative Value Update Committee (RUC). For a more detailed explanation of the PE methodology see the June 29, 2006 proposed notice (71 FR 37242) and the CY 2007 PFS final rule with comment period (71 FR 69629). 1. Current Methodology a. Data Sources for Calculating Practice Expense The AMA's SMS survey data and supplemental survey data from the specialties of cardio-thoracic surgery, vascular surgery, physical and occupational therapy, independent laboratories, allergy/immunology, cardiology, dermatology, gastroenterology, radiology, independent diagnostic testing facilities (IDTFs), radiation oncology, and urology are used to develop the PE per hour (PE/HR) for each specialty. For those specialties for which we do not have PE/HR, the appropriate PE/HR is obtained from a crosswalk to a similar specialty. The AMA developed the SMS survey in 1981 and discontinued it in 1999. Beginning in 2002, we incorporated the 1999 SMS survey data into our calculation of the PE RVUs, using a 5-year average of SMS survey data. (See the November 1, 2002 Revisions to Payment Policies and Five-Year Review of and Adjustments to the Relative Value Units Under the Physician Fee Schedule for CY 2002 final rule (66 FR 55246) (hereinafter referred to as CY 2002 PFS final rule).) The SMS PE survey data are adjusted to a common year, 2005. The SMS data provide the following six categories of PE costs: • Clinical payroll expenses, which are payroll expenses (including fringe benefits) for nonphysician clinical personnel. • Administrative payroll expenses, which are payroll expenses (including fringe benefits) for nonphysician personnel involved in administrative, secretarial or clerical activities. • Office expenses, which include expenses for rent, mortgage interest, depreciation on medical buildings, utilities and telephones. • Medical material and supply expenses, which include expenses for drugs, x-ray films, and disposable medical products. • Medical equipment expenses, which include expenses depreciation, leases, and rent of medical equipment used in the diagnosis or treatment of patients. • All other expenses, which include expenses for legal services, accounting, office management, professional association memberships, and any professional expenses not previously mentioned in this section. In accordance with section 212 of the BBRA, we established a process to supplement the SMS data for a specialty with data collected by entities and organizations other than the AMA (that is, the specialty itself). (See the Criteria for Submitting Supplemental Practice Expense Survey Data interim final rule with comment period (65 FR 25664, May 3, 2000).) Originally, the deadline to submit supplementary survey data was through August 1, 2001. In the CY 2002 PFS final rule (66 FR 55246), the deadline was extended through August 1, 2003. To ensure maximum opportunity for specialties to submit supplementary survey data, we extended the deadline to submit surveys until March 1, 2005 in the Revisions to Payment Policies Under the Physician Fee Schedule for CY 2004 final rule (November 7, 2003; 68 FR 63196) (hereinafter referred to as CY 2004 PFS final rule). The direct cost data for individual services were originally developed by the Clinical Practice Expert Panels (CPEP). The CPEP data include the supplies, equipment, and staff times specific to each procedure. The CPEPs consisted of panels of physicians, practice administrators, and nonphysicians (for example, RNs) who were nominated by physician specialty societies and other groups. There were 15 CPEPs consisting of 180 members from more than 61 specialties and subspecialties. Approximately 50 percent of the panelists were physicians. The CPEPs identified specific inputs involved in each physician's service provided in an office or facility setting. The inputs identified were the quantity and type of nonphysician labor, medical supplies, and medical equipment. In 1999, the AMA's RUC established the Practice Expense Advisory Committee (PEAC). From 1999 to March 2004, the PEAC, a multi-specialty committee, reviewed the original CPEP inputs and provided us with recommendations for refining these direct PE inputs for existing CPT codes. Through its last meeting in March 2004, the PEAC provided recommendations for over 7,600 codes which we have reviewed and accepted. As a result, the current PE inputs differ markedly from those originally recommended by the CPEPs. The PEAC has now been replaced by the Practice Expense Review Committee (PERC), which acts to assist the RUC in recommending PE inputs. b. Allocation of PE to Services The aggregate level specialty-specific PEs are derived from the AMA's SMS survey and supplementary survey data. To establish PE RVUs for specific services, it is necessary to establish the direct and indirect PE associated with each service. (i) Direct costs. The direct costs are determined by adding the costs of the resources (that is, the clinical staff, equipment, and supplies) typically required to provide the service. The costs of these resources are calculated from the refined direct PE inputs in our PE database. These direct inputs are then scaled to the current aggregate pool of direct PE RVUs. The aggregate pool of direct PE RVUs can be derived using the following formula: (PE RVUs * physician CF) * (average direct percentage from SMS/(Supplemental PE/HR data)). (ii) Indirect costs. The SMS and supplementary survey data are the source for the specialty-specific aggregate indirect costs used in our PE calculations. We then allocate the indirect costs to the code level on the basis of the direct costs specifically associated with a code and the maximum of either the clinical labor costs or the physician work RVUs. For calculation of the 2008 PE RVUs, we are proposing to use the 2006 procedure-specific utilization data crosswalked to 2007 services. To arrive at the indirect PE costs: • We apply a specialty-specific indirect percentage factor to the direct expenses to recognize the varying proportion that indirect costs represent of total costs by specialty. For a given service, the specific indirect percentage factor to apply to the direct costs for the purpose of the indirect allocation is calculated as the weighted average of the ratio of the indirect to direct costs (based on the survey data) for the specialties that furnish the service. For example, if a service is furnished by a single specialty with indirect PEs that were 75 percent of total PEs, the indirect percentage factor to apply to the direct costs for the purposes of the indirect allocation would be (0.75/0.25) = 3.0. The indirect percentage factor is then applied to the service level adjusted indirect practice expense allocators. • We use the specialty-specific PE/HR from the SMS survey data, as well as the supplemental surveys for cardio-thoracic surgery, vascular surgery, physical and occupational therapy, independent laboratories, allergy/immunology, cardiology, dermatology, radiology, gastroenterology, IDTFs, radiation oncology and urology. Note: For radiation oncology, the data represent the combined survey data from the American Society for Therapeutic Radiology and Oncology (ASTRO) and the Association of Freestanding Radiation Oncology Centers (AFROC).) We incorporate this PE/HR into the calculation of indirect costs using an index which reflects the relationship between each specialty's indirect scaling factor and the overall indirect scaling factor for the entire PFS. For example, if a specialty had an indirect practice cost index of 2.00, this specialty would have an indirect scaling factor that was twice the overall average indirect scaling factor. If a specialty had an indirect practice cost index of 0.50, this specialty would have an indirect scaling factor that was half the overall average indirect scaling factor. • When the clinical labor portion of the direct PE RVU is greater than the physician work RVU for a particular service, the indirect costs are allocated based upon the direct costs and the clinical labor costs. For example, if a service has no physician work and 1.10 direct PE RVUs, and the clinical labor portion of the direct PE RVUs is 0.65 RVUs, we would use the 1.10 direct PE RVUs and the 0.65 clinical labor portions of the direct PE RVUs to allocate the indirect PE for that service. c. Facility/Nonfacility Costs Procedures that can be furnished in a physician's office, as well as in a hospital or facility setting, have two PE RVUs: Facility and nonfacility. The nonfacility setting includes physicians' offices, patients' homes, freestanding imaging centers, and independent pathology labs. Facility settings include hospitals, ambulatory surgical centers (ASCs), and skilled nursing facilities (SNFs). The methodology for calculating PE RVUs is the same for both, facility and nonfacility RVUs, but is applied independently to yield two separate PE RVUs. Because the PEs for services provided in a facility setting are generally included in the payment to the facility (rather than the payment to the physician under the PFS), the PE RVUs are generally lower for services provided in the facility setting. d. Services With Technical Components (TCs) and Professional Components (PCs) Diagnostic services are generally comprised of two components; a professional component (PC) and a technical component (TC), which may be performed independently or by different providers. When services have TC, PC, and global components that can be billed separately, the payment for the global component equals the sum of the payment for the TC and PCs. This is a result of using a weighted average of the ratio of indirect to direct costs across all the specialties that furnish the global components, TCs, and PCs; that is, we apply the same weighted average indirect percentage factor to allocate indirect expenses to the global components, PC, and TCs for a service. (The direct PE RVUs for the TC and PCs sum to the global under the bottom-up methodology.) e. Transition Period As discussed in the CY 2007 PFS final rule with comment period (71 FR 69674), we are implementing the change in the methodology for calculating PE RVUs over a 4-year period. During this transition period, the PE RVUs will be calculated on the basis of a blend of RVUs calculated using our methodology described previously in this section (weighted by 25 percent during CY 2007, 50 percent during CY 2008, 75 percent during CY 2009, and 100 percent thereinafter), and the CY 2006 PE RVUs for each existing code. PE RVUs for codes that are new during this period will be calculated using only the current PE methodology, and will be paid at the fully transitioned rate. f. PE RVU Methodology The following is a description of the PE RVU methodology. (i) Setup File First, we create a setup file for the PE methodology. The setup file contains the direct cost inputs, the utilization for each procedure code at the specialty and facility/nonfacility place of service level, and the specialty-specific survey PE per physician hour data. (ii) Calculate the Direct Cost PE RVUs Sum the costs of each direct input. Step 1: Sum the direct costs of the inputs for each service. The direct costs consist of the costs of the direct inputs for clinical labor, medical supplies, and medical equipment. The clinical labor cost is the sum of the cost of all the staff types associated with the service; it is the product of the time for each staff type and the wage rate for that staff type. The medical supplies cost is the sum of the supplies associated with the service; it is the product of the quantity of each supply and the cost of the supply. The medical equipment cost is the sum of the cost of the equipment associated with the service; it is the product of the number of minutes each piece of equipment is used in the service and the equipment cost per minute. The equipment cost per minute is calculated as described at the end of this section. Apply a BN adjustment to the direct inputs. Step 2: Calculate the current aggregate pool of direct PE costs. To do this, multiply the current aggregate pool of total direct and indirect PE costs (that is, the current aggregate PE RVUs multiplied by the CF) by the average direct PE percentage from the SMS and supplementary specialty survey data. Step 3: Calculate the aggregate pool of direct costs. To do this, for all PFS services, sum the product of the direct costs for each service from Step 1 and the utilization data for that service. Step 4: Using the results of Step 2 and Step 3 calculate a direct PE BN adjustment so that the proposed aggregate direct cost pool does not exceed the current aggregate direct cost pool and apply it to the direct costs from Step 1 for each service. Step 5: Convert the results of Step 4 to an RVU scale for each service. To do this, divide the results of Step 4 by the Medicare PFS CF. (iii) Create the Indirect PE RVUs Create indirect allocators. Step 6: Based on the SMS and supplementary specialty survey data, calculate direct and indirect PE percentages for each physician specialty. Step 7: Calculate direct and indirect PE percentages at the service level by taking a weighted average of the results of Step 6 for the specialties that furnish the service. Note that for services with a TC and PCs we are calculating the direct and indirect percentages across the global components, PCs and TCs. That is, the direct and indirect percentages for a given service (for example, echocardiogram) do not vary by the PC, TC and global component. Step 8: Calculate the service level allocators for the indirect PEs based on the percentages calculated in Step 7. The indirect PEs are allocated based on the three components: The direct PE RVU, the clinical PE RVU and the work RVU. For most services the indirect allocator is: indirect percentage * (direct PE RVU/direct percentage) + work RVU. There are two situations where this formula is modified: • If the service is a global service (that is, a service with global, professional and technical components), then the indirect allocator is: indirect percentage * (direct PERVU/direct percentage) + clinical PE RVU + work RVU. • If the clinical labor PE RVU exceeds the work RVU (and the service is not a global service), then the indirect allocator is: indirect percentage * (direct PERVU/direct percentage) + clinical PE RVU. (Note that for global services the indirect allocator is based on both the work RVU and the clinical labor PE RVU. We do this to recognize that, for the professional service, indirect PEs will be allocated using the work RVUs, and for the TC service, indirect PEs will be allocated using the direct PE RVU and the clinical labor PE RVU. This also allows the global component RVUs to equal the sum of the PC and TC RVUs.) For presentation purposes in the examples in the Table 1, the formulas were divided into two parts for each service. The first part does not vary by service and is the indirect percentage * (direct PE RVU/direct percentage). The second part is either the work RVU, clinical PE RVU, or both depending on whether the service is a global service and whether the clinical PE RVU exceeds the work RVU (as described earlier in this step.) Apply a BN adjustment to the indirect allocators. Step 9: Calculate the current aggregate pool of indirect PE RVUs by multiplying the current aggregate pool of PE RVUs by the average indirect PE percentage from the physician specialty survey data. This is similar to the Step 2 calculation for the direct PE RVUs. Step 10: Calculate an aggregate pool of proposed indirect PE RVUs for all PFS services by adding the product of the indirect PE allocators for a service from Step 8 and the utilization data for that service. This is similar to the Step 3 calculation for the direct PE RVUs. Step 11: Using the results of Step 9 and Step 10, calculate an indirect PE adjustment so that the aggregate indirect allocation does not exceed the available aggregate indirect PE RVUs and apply it to indirect allocators calculated in Step 8. This is similar to the Step 4 calculation for the direct PE RVUs. Calculate the Indirect Practice Cost Index. Step 12: Using the results of Step 11, calculate aggregate pools of specialty-specific adjusted indirect PE allocators for all PFS services for a specialty by adding the product of the adjusted indirect PE allocator for each service and the utilization data for that service. Step 13: Using the specialty-specific indirect PE/HR data, calculate specialty-specific aggregate pools of indirect PE for all PFS services for that specialty by adding the product of the indirect PE/HR for the specialty, the physician time for the service, and the specialty's utilization for the service. Step 14: Using the results of Step 12 and Step 13, calculate the specialty-specific indirect PE scaling factors as under the current methodology. Step 15: Using the results of Step 14, calculate an indirect practice cost index at the specialty level by dividing each specialty-specific indirect scaling factor by the average indirect scaling factor for the entire PFS. Step 16: Calculate the indirect practice cost index at the service level to ensure the capture of all indirect costs. Calculate a weighted average of the practice cost index values for the specialties that furnish the service. Note: For services with TC and PCs, we calculate the indirect practice cost index across the global components, PCs and TCs. Under this method, the indirect practice cost index for a given service (for example, echocardiogram) does not vary by the PC, TC and global components. Step 17: Apply the service level indirect practice cost index calculated in Step 16 to the service level adjusted indirect allocators calculated in Step 11 to get the indirect PE RVU. (iv) Calculate the Final PE RVUs Step 18: Add the direct PE RVUs from Step 6 to the indirect PE RVUs from Step 17. Step 19: Calculate and apply the final PE BN adjustment by comparing the results of Step 18 to the current pool of PE RVUs. This final BN adjustment is required primarily because certain specialties are excluded from the PE RVU calculation for rate-setting purposes, but all specialties are included for purposes of calculating the final BN adjustment. (See “Specialties excluded from rate-setting calculation” below in this section.) (v) Setup File Information • Specialties excluded from rate-setting calculation: For the purposes of calculating the PE RVUs, we exclude certain specialties such as midlevel practitioners paid at a percentage of the PFS, audiology, and low volume specialties from the calculation. These specialties are included for the purposes of calculating the BN adjustment. • Crosswalk certain low volume physician specialties: Crosswalk the utilization of certain specialties with relatively low PFS utilization to the associated specialties. • Physical therapy utilization: Crosswalk the utilization associated with all physical therapy services to the specialty of physical therapy. • Identify professional and technical services not identified under the usual TC and 26 modifier: Flag the services that are PC and TC services, but do not use TC and 26 modifiers (for example, electrocardiograms). This flag associates the PC and TC with the associated global code for use in creating the indirect PE RVU. For example, the professional service code 93010 is associated with the global code 93000. • Payment modifiers: Payment modifiers are accounted for in the creation of the file. For example, services billed with the assistant at surgery modifier are paid 16 percent of the PFS amount for that service; therefore, the utilization file is modified to only account for 16 percent of any service that contains the assistant at surgery modifier. • Work RVUs: The setup file contains the work RVUs from this proposed rule. (vi) Equipment Cost Per Minute = The equipment cost per minute is calculated as: (1/(minutes per year * usage)) * price * ((interest rate/(1-(1/((1 + interest rate) * life of equipment)))) + maintenance) Where: minutes per year = maximum minutes per year if usage were continuous (that is, usage = 1); 150,000 minutes. usage = equipment utilization assumption; 0.5. price = price of the particular piece of equipment. interest rate = 0.11. life of equipment = useful life of the particular piece of equipment. maintenance = factor for maintenance; 0.05. Table 1.—Calculation of PE RVUs Under Proposed Methodology for Selected Codes Step Source Formula 99213 Office visit, est nonfacility 33533 CABG, arterial, single facility 71020 Chest x-ray nonfacility 71020TC Chest x-ray nonfacility 7102026 Chest x-ray nonfacility 93000 ECG, complete nonfacility 93005 ECG, tracing nonfacility 93010 ECG, report nonfacility (1) Labor cost (Lab) Step 1 AMA $ 13.44 $ 77.74 $ 5.74 $ 5.65 $ $ 6.12 $ 6.12 $ (2) Supply cost (Sup) Step 1 AMA $ 2.94 $ 7.60 $ 3.39 $ 3.34 $ $ 1.19 $ 1.19 $ (3) Equipment cost (Eqp) Step 1 AMA $ 0.19 $ 0.64 $ 8.18 $ 8.05 $ $ 0.12 $ 0.12 $ (4) Direct cost (Dir) Step 1 = (1) + (2) + (3) $ 16.37 $ 85.34 $ 17.31 $ 17.54 $ $ 7.60 $ 7.60 $ (5) Direct adjustment (Dir Adj) Steps 2-4 See footnote* 0.584 0.584 0.584 0.584 0.584 0.584 0.584 0.584 (6) Adjusted labor Steps 2-4 = Lab*Dir Adj = (1) * (5) $ 7.85 $ 45.40 $ 3.35 $ 3.30 $ $ 3.57 $ 3.57 $ (7) Adjusted supplies Steps 2-4 = Sup*Dir Adj = (2) * (5) $ 1.72 $ 4.44 $ 1.98 $ 1.95 $ $ 0.70 $ 0.70 $ (8) Adjusted equipment Steps 2-4 = Eqp*Dir Adj = (3) * (5) $ 0.11 $ 0.37 $ 4.77 $ 4.70 $ $ 0.07 $ 0.07 $ (9) Adjusted direct Steps 2-4 = (6) + (7) + (8) $9.56 $ 49.84 $ 10.11 $ 10.24 $ $ 4.44 $ 4.44 $ (10) Conversion Factor (CF) Step 5 MFS $34.1350 $34.1350 $34.1350 $34.1350 $34.1350 $34.1350 $34.1350 $34.1350 (11) Adj. labor cost converted Step 5 = (Lab*Dir Adj)/CF = (6)/(10) 0.23 1.33 0.10 0.10 0.10 0.10 (12) Adj. supply cost converted Step 5 = (Sup*Dir Adj)/CF = (7)/(10) 0.05 0.13 0.06 0.06 0.02 0.02 (13) Adj. equip cost converted Step 5 = (Eqp*Dir Adj)/CF = (8)/(10) 0.00 0.01 0.14 0.14 0.00 0.00 (14) Adj. direct cost converted Step 5 = (11) + (12) + (13) 0.28 1.46 0.30 0.30 0.13 0.13 (15) Wrk RVU* Wrk Scaler Setup File MFS 0.81 29.66 0.19 0.19 0.15 0.15 (16) Dir_pct Steps 6, 7 Surveys 33.8% 32.6% 40.7% 40.7% 40.7% 37.7% 37.7% 37.7% (17) Ind_pct Steps 6, 7 Surveys 66.2% 67.4% 59.4% 59.4% 59.4% 62.3% 62.3% 62.3% (18) Ind. Alloc. formula (1st part) Step 8 See Step 8 ((14)/(16)) * (17) ((14)/(16)) * (17) ((14)/(16)) * (17) ((14)/(16)) * (17) ((14)/(16)) * (17) ((14)/(16)) * (17) ((14)/(16)) * (17) ((14)/(16)) * (17) (19) Ind. Alloc. (1st part) Step 8 See (18) 0.55 3.02 0.43 0.44 0.21 0.21 (20) Ind. Alloc. formulas (2nd part) Step 8 See Step 8 (15) (15) (15) + (11) (11) (15) (15) + (11) (11) (15) (21) Ind. Alloc. (2nd part) Step 8 See (20) 0.81 29.66 0.29 0.10 0.19 0.25 0.10 0.15 (22) Indirect Allocator (1st + 2nd) Step 8 = (19) + (21) 1.36 32.68 0.72 0.53 0.19 0.47 0.32 0.15 (23) Indirect Adjustment (Ind Adj) Steps 9-11 See footnote** 0.362 0.362 0.362 0.362 0.362 0.362 0.362 0.362 (24) Adjusted Indirect Allocator Steps 9-11 = Ind Alloc* Ind Adj 0.49 11.83 0.26 0.19 0.07 0.17 0.12 0.05 (25) Ind. Practice Cost Index (PCI) Steps 12-16 See Steps 12-16 0.966 0.941 1.060 1.060 1.060 1.237 1.237 1.237 (26) Adjusted Indirect Step 17 = Adj. Ind Alloc*PCI = (24) * (25) 0.48 11.13 0.28 0.21 0.07 0.21 0.14 0.07 (27) PE RVU Steps 18-19 = (Adj Dir + Adj Ind) *budn = ((14) + (26)) *budn 0.75 12.56 0.57 0.50 0.07 0.34 0.27 0.07 * The direct adj = [current pe rvus * CF * avg dir pct] / [sum direct inputs] = [Step 2] / [Step 3]. ** The indirect adj = [current pe rvus * avg ind pct] / [sum of ind allocators] = [Step 9] / [Step 10. g. Discussion of Equipment Usage Percentage We continue to receive comments regarding our use of the equipment usage assumption of 50 percent. MedPAC continues to support an unspecified higher utilization rate. Several interested parties, including the AMA RUC, have requested that we refine this usage percentage to somewhere in the range of 70 to 80 percent. Other interested parties contend that the current utilization rate is too high at 50 percent and should be refined downward to a lower usage percentage. If the equipment usage percentage is set too high, the result would be insufficient allowance at the service level for the practice costs associated with equipment. If the equipment usage percentage is set too low, the result would be an excessive allowance for the PE costs of equipment at the service level. We do not want to create disincentives for the use of equipment by arbitrarily increasing the equipment usage percentage. Conversely, we do not want to create incentives for the acquisition and potential over-utilization of equipment by arbitrarily decreasing the equipment usage percentage. Although we acknowledge the across-the-board 50 percent usage rate we currently apply for all equipment does not capture the actual usage rates for all equipment, we do not believe that we have sufficient empirical evidence to justify an alternative proposal on this issue. We are interested in receiving comments relating to alternative percentages and approaches that differentially classify equipment into mutually exclusive categories with category-specific usage rate assumptions. We are committed to continuing our work with the physician community to examine equipment usage rate assumptions that ensure appropriate payments and encourage appropriate utilization of equipment. Additionally, we would welcome any empirical data that would assist us in these efforts. h. Equipment Interest Rate (Discussion) As part of our calculation of the PE equipment costs, we take into consideration several factors, for example, the useful life of each piece of equipment and the typical interest that would be incurred in the purchase of the equipment. We updated the assigned useful life for all the equipment in our PE input database in the CY 2005 PFS final rule with comment period. However, we have used the same interest rate of 11 percent since the inception of the resource-based PE methodology in 1999. There has been much discussion regarding whether this is still the appropriate interest rate to utilize in the calculation of the equipment costs. The majority of comments on the CY 2007 PFS final rule with comment period requested an interest rate of prime plus 2 percent while a small number of commenters requested an interest rate significantly lower than prime plus 2 percent. The current interest rate of 11 percent was assigned in 1997 based upon information provided by the Small Business Administration (SBA). This prevailing rate was based upon data regarding prevailing loan rates for small businesses from both national and regional lending associations. Although the SBA offered various interest rates, we believed that the 11 percent interest rate was most relevant for fee schedule services as this rate was based on equipment cost of over $25,000 with a useful life of over 7 years. We have analyzed 2007 SBA data on loans and applicable interest rates. According to the SBA, loans are based on the prime rate plus a fixed percentage based upon the amount of the loan and the usable life of the equipment purchased. The prime plus rates ranged from 9.4 percent to 13 percent. Using the same criteria as was used in 1997 (that is, equipment cost over $25,000 with a useful life of over 7 years), the interest rates ranged from 10.1 percent to 13 percent. Based upon our analysis of the revised SBA interest rate data, we believe 11 percent continues to be an appropriate assumption; therefore, we will retain the interest rate used in the calculation of equipment costs at 11 percent and no proposal is being made to adjust this rate. 2. PE Proposals for CY 2008 a. Radiology Practice Expense Per Hour The American College of Radiology (ACR) presented CMS with information regarding the PE/HR that was used in the PE methodology for radiology in the CY 2007 PFS final rule with comment period. ACR suggested that we change our methodology in a way that would weight the survey data to provide an alternative method of representing large and small practices. We agreed to take their approach to our contractor, the Lewin Group, for further analysis. (We note that the Lewin Group, in its initial analysis of the ACR survey data, had also raised concerns about the representation of small high cost entities in the ACR survey data.) The Lewin Group reviewed ACR's approach and concluded that weighting the ACR survey by practice size more appropriately accounts for the small high cost entities in the final PE/HR. After reviewing both the ACR inquiry and the Lewin response, we also agree that ACR's approach more appropriately identifies the PE/HR for radiology. For these reasons, we propose to revise the PE/HR associated with radiology using the survey data weighted by practice size. See Table 2 which identifies the PE/HR for all specialties, as well as both the current and proposed revisions to the PE/HR for radiology. Table 2.—2008 SMS and Supplemental Survey PE/HR Inflated to 2005 Based Upon MEI Growth Factors [Includes proposed revision to radiology PE/HR] Specialty Clinical labor Clerical payroll Office expense Supplies expense Equipment expense Other expense Total expense ALL PHYSICIANS 15.68 19.64 24.74 9.44 4.08 14.66 88.23 ALLERGY/IMMUNOLOGY 65.88 56.33 65.88 22.49 6.26 31.08 247.93 ANESTHESIOLOGY 14.41 4.72 7.52 0.51 0.51 7.52 35.19 CARDIAC/THORACIC SURGERY 24.38 22.50 21.50 2.63 2.63 17.75 91.38 CARDIOVASCULAR DISEASE 59.55 53.33 52.67 25.90 18.58 25.02 235.05 DERMATOLOGY 40.63 51.45 78.82 15.38 11.03 28.22 225.55 DIAGNOSTIC TESTING FACILITY 111.57 155.49 121.18 54.96 302.47 189.48 935.15 EMERGENCY MEDICINE 4.21 19.64 2.55 0.89 0.13 14.66 42.08 GASTROENTEROLOGY 30.16 39.56 48.41 8.20 5.90 13.33 145.55 GENERAL INTERNAL MEDICINE 11.99 18.36 22.82 7.78 2.68 8.42 72.04 GENERAL SURGERY 9.18 19.89 21.42 4.34 2.55 12.62 70.00 GENERAL/FAMILY PRACTICE 18.87 19.00 22.57 10.07 3.95 11.22 85.68 INDEPENDENT LAB 84.79 25.76 19.09 19.84 8.83 21.60 179.93 NEUROLOGICAL SURGERY 10.97 32.64 36.47 2.30 1.79 20.53 104.68 NEUROLOGY 10.58 29.33 24.86 6.63 5.61 11.86 88.87 OBSTETRICS/GYNECOLOGY 20.91 23.97 31.49 9.31 4.08 14.28 104.04 ONCOLOGY 68.06 44.22 43.86 21.53 9.48 53.76 240.91 OPHTHALMOLOGY 32.00 32.90 43.48 13.77 10.71 26.90 159.76 ORTHOPEDIC SURGERY 21.17 36.34 37.87 13.13 4.85 24.35 137.70 OTHER SPECIALTY 11.86 16.58 24.61 6.25 2.42 11.22 72.93 OTOLARYNGOLOGY 21.93 32.13 41.95 9.56 7.14 21.93 134.64 PATHOLOGY 14.28 17.85 15.17 8.67 2.55 26.78 85.30 PEDIATRICS 15.81 16.45 24.10 13.01 2.17 10.97 82.49 PHYS MED/RHEUMATOLOGY 19.00 30.22 39.14 8.29 7.91 15.56 120.11 PHYSICAL THERAPY 13.25 8.21 17.11 3.05 2.70 9.85 54.15 PLASTIC SURGERY 19.13 25.88 41.31 23.59 7.27 32.13 149.30 PSYCHIATRY 2.17 6.50 13.39 0.51 0.51 9.18 32.26 PULMONARY DISEASE 8.80 15.81 20.02 3.32 2.04 8.80 58.78 RADIATION ONCOLOGY 68.82 32.38 48.83 6.38 39.33 32.85 228.59 RADIOLOGY 29.07 37.81 23.93 11.26 27.32 44.80 174.18 *RADIOLOGY *32.62 *42.29 *28.95 *14.15 *39.62 *47.24 *204.86 UROLOGICAL SURGERY 27.90 42.33 53.79 14.43 11.25 23.45 173.14 VASCULAR SURGERY 25.79 23.04 22.56 4.06 5.78 14.50 95.73 *Proposed revision to radiology PE/HR. b. RUC Recommendations for Direct PE Inputs and Other PE Input Issues The following discussions are proposals concerning direct PE inputs. (i) RUC Recommendations In 2004, the AMA's Relative Value Update Committee (RUC) established a new committee, the Practice Expense Review Committee (PERC), to assist the RUC in recommending direct PE inputs (clinical staff, supplies, and equipment) for new and existing CPT codes. The PERC reviewed the PE inputs for nearly 300 existing codes at its meetings held in February 2007 and April 2007. (A list of these reviewed codes can be found in Addendum C.) In the CY 2007 PFS final rule with comment period, we addressed several issues concerning direct PE inputs and encouraged specialty societies to pursue further review of these inputs through the RUC/PERC process. The following discussions summarize the PERC recommendations regarding these issues: Cardiac Catheterization Procedures At the recent April RUC meeting, the PERC considered recommendations for the family of CPT codes 93501 through 93556 for cardiac catheterization. The American College of Cardiology, in cooperation with the Society of Cardiac Angiography and Interventions and the Cardiovascular Outpatient Center Alliance, developed PE inputs for the nonfacility setting for 13 of the 28 CPT codes in this family. The PERC considered the proposed new or updated PE input recommendations for 13 cardiac catheterization CPT codes. • Of these 13 codes, 8 were not previously valued in the nonfacility setting (as recommended at the January 2002 PEAC meeting), including CPT codes 93539, 93540, 93542, 93543, 93544, 93545, 93555, and 93556. • The recommended revised PE inputs for the other 5 codes (last valued in the nonfacility setting at the January 2004 PEAC meeting), included CPT codes: 93501, 93505, 93508, 93510, and 93526. We are proposing to accept the PERC recommendations for the direct PE inputs for the nonfacility setting for the CPT codes 93501, 93505, 93508, 93510, 93526, 93539, 93540, 93542, 93543, 93544, 93545, 93555, and 93556. The specialty societies recommended that the remaining 15 codes in the cardiac catheterization family remain carrier-priced, or be assigned an “NA” for the practice expense in the office setting. It was noted that these codes were rarely if ever performed in the office setting and the specialties recommended no direct PE inputs. Assigning these CPT codes as “NA” for PE in the nonfacility setting would conform to PFS policy for other services without PE inputs. Therefore, we are proposing that the PE for the following CPT codes will not be valued or applicable to the nonfacility setting: 93503, 93511, 93514, 93524, 93527, 93528, 93529, 93530, 93531, 93532, 93533, 93561, 93562, 93571, and 93572. Obstetric/Gynecologic PE The PERC recommended changes to the content and the price of the pack, pelvic exam (supply code SA051) valued at $0.95. We agreed with the recommendation to add a non-sterile sheet (drape) 40 in by 60 in (supply code SB006) priced at $0.222 to the pelvic exam pack resulting in the new price of $1.172. This change affected 236 CPT codes for obstetric/gynecologic services containing the pelvic exam pack. In addition, we accepted the PERC recommendations to standardize the equipment used in post-operative visits to include both a power table and fiberoptic light in the PE database for 70 obstetric/gynecologic codes. Dual Energy X-Ray Absorptiometry (DEXA) The PERC considered revisions to the direct PE inputs for CPT codes 77080, 77081, and 77082 that contained recommendations established by 5 distinct specialty organizations. These recommended inputs were revised to comply with established PERC standards, such as removing some labor inputs for CPT code 77082 because this procedure is always performed with CPT code 77081 and all revisions were agreed to by the presenting specialty. The resulting recommended inputs more appropriately reflect the resources used to furnish these services and were adopted by the PERC. We agree with the PERC and have made adjustments to the PE database. Computer-Aided Detection (CAD) Codes The specialty society for radiological services reviewed the direct inputs for CPT codes 77051 and 77052 and recommended that no changes to the PE inputs were needed. The PERC concurred with this decision and we are in agreement. In addition to the above, the PERC also addressed the following issues: Nuclear Medicine Services The specialty society representing nuclear medicine recommended that the direct PE inputs for 2 CPT codes contained CPEP inputs and needed to be updated to agree with 2004 PEAC-approved inputs. The PERC recommended that the PE database reflect these changes and we agreed. However, we discovered that there were 4 other related codes which also had CPEP inputs. We made the appropriate adjustments to substitute the PEAC inputs for the CPEP for CPT codes 78600, 78607, 78206, 78647, 78803 and 78807. The specialty society also noted that 7 CPT codes required the revision of x-ray related supplies, including the number of x-ray films, developer solution, and film jackets. The PERC forwarded these recommendations and we have made the appropriate changes to the PE database for the following CPT codes: 78600, 78601, 78605, 78606, 78607, 78610 and 78615. Transcatheter Placement of Stent(s) At the request of the specialty societies representing radiology and interventional radiology, the PERC agreed to consider the direct PE inputs for the nonfacility setting for 3 CPT codes, 37205, 37206, and 75960, for transcatheter placement of stent(s). These PE inputs to value these procedures in the nonfacility setting were approved by the PERC. Among the supplies, a “vascular stent deployment system”, valued at $1,645, was noted by the society as the typical stent used for CPT codes 37205 and 37206 requiring 2 such stents for the placement in the initial vessel and 1 stent for each subsequent vessel, respectively. We reviewed a published clinical research study which was forwarded by the specialty society that indicated that 1 stent was typical for the procedure of CPT code 37205. Absent any further verification from the specialty, we have, therefore, included only 1 stent in this code. The complete PERC recommendations and the revised PE database can be found on the CMS Web site at http://cms.hhs.gov/PhysicianFeeSched/PFSFRN/ (under CMS-1385-P). (ii) Remote Cardiac Event Monitoring As discussed in the CY 2007 PFS final rule with comment period, direct PE inputs for remote cardiac event monitoring (CEM) services represented by CPT codes 93012, 93225, 93226, 93231, 93232, 93270, 93271, 93733, and 93736 were revised on an interim basis to reflect the unique circumstances surrounding the provision of these services. Unlike most physicians' services, CEM services are furnished primarily by specialized IDTFs that, due to the nature of CEM services, must operate on a 24/7 basis. The specialty group which represents suppliers that furnish CEM services believes that these services require additional direct PE inputs, such as telephone line charges associated with trans-telephonic transmissions and fees associated with providing Web access for storage and transmission of clinical information to the patient's physician. We continue to work with the specialty group regarding the specific direct PE inputs, as well as the components for the indirect PE allocation, based on surveys conducted by the specialty group. To clarify and further the results of our discussions with and information provided by the specialty group, we are asking for comments on the appropriateness of the above mentioned direct PE inputs. In addition, we invite comments on any additional direct inputs and components of the indirect PE allocations which would be appropriate for these services, along with supporting documentation to justify their inclusion for PE purposes. (iii) Prothrombin Time, International Normalized Ratio (PT/INR) In the CEM discussion in the CY 2007 PFS final rule with comment period, we included some minor PE revisions on an interim basis for PT/INR services represented by Healthcare Common Procedure Coding System (HCPCS) codes, G0248, Demonstration, at initial use, of home INR monitoring for patient with mechanical heart valve(s) who meets Medicare coverage criteria, under the direction of a physician; includes: Demonstrating 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 patient ability to perform testing and G0249, Provision of test materials and equipment for home INR monitoring to patient with mechanical heart valve(s) who meets Medicare coverage criteria; includes provision of materials for use in the home and reporting pwiof [prothrombin] test results to physician; per four tests. Based on comments received and subsequent discussions with entities that furnish these PT/INR services, we have adjusted the time in use for the home monitor equipment for G0249 to 1440 minutes to reflect that the monitor is dedicated for use 24 hours a day and unavailable for others receiving this service. We invite comments on this change, as well as comments on any additional direct inputs which would be appropriate to this service, along with supporting documentation to justify their inclusion for PE purposes. (iv) Positron Emission Tomography (PET) Codes Clinical Labor Time We received comments from the specialty society representing nuclear medicine regarding a discrepancy in the clinical labor time for CPT codes 78811, 78812, and 78813 which are PET codes for tumor imaging. The specialty noted that the clinical labor time indicated in the PE database differs by 7 minutes from the time that was previously recommended by the PERC in April 2004. We agree with the specialty society that the PE database labor inputs for these 3 PET codes are incorrect and have made the appropriate adjustments to the PE database. (v) Nuclear Medicine PE Supplies The specialty society representing nuclear medicine commented that the PE database currently contains supply items that are inappropriate for certain procedures and provided the information to make the corrections. For respiratory imaging procedures represented by CPT codes 78587, 78591, 78593, 78594, 78630, 78660, 78291, and 78195, the specialty society noted specific IV supply items to be deleted from procedures where they are not required. For a thyroid imaging procedure represented by CPT code 78020, x-ray supply items were recommended for deletion. In addition, the society recommended adding supply items for respiratory imaging procedures, including nose clips, masks, and nebulizer kits, as appropriate, to CPT codes 78584, 78585, 78591, 78593, 78594, 78586, 78587, 78588, and 78596. For a kidney function study represented by CPT code 78725, injection supply items were noted as missing and the specialty society requested that these be added. We propose to accept these direct PE input corrections and have revised our PE database accordingly. (vi) Arthroscopic Procedure Nonfacility Inputs During the CY 2007 PFS rulemaking, we noted that at the October 2006 RUC meeting a proposal was discussed for the establishment of nonfacility direct PE inputs for the arthroscopic procedures represented by CPT codes 29805, 29830, 29840, 29870, and 29900. At this October 2006 RUC meeting, the orthopedic specialty society declined to consider the valuation of these procedures for the nonfacility setting, based on the belief that these procedures are not safely performed in the physician office. The RUC agreed at that time and no recommendations were issued. Subsequent to the publication of the CY 2007 PFS final rule with comment period in which we supported the RUC recommendation, we again discussed this valuation with physicians who are currently performing these procedures in the office. Because we believe that the RUC process is the most appropriate to provide these nonfacility inputs, we again referred the physicians providing these services to work with the RUC-represented orthopedic specialty society; however, they informed us that the orthopedic specialty society had recently again declined to support them in bringing the direct PE inputs to the April 2007 RUC/PERC meeting for consideration in valuing these services in the nonfacility setting. Absent specific recommendations from the RUC and because some physicians are already performing these procedures in the office setting, we are seeking comments regarding the appropriateness of establishing nonfacility PE inputs for these arthroscopic procedures when they are provided in the office setting. We also invite comments as to the specific direct PE inputs, following the RUC-approved standardized format, that are typical in the provision of each above listed arthroscopic procedure furnished in the physician's office. We will review these comments to determine whether or not it is appropriate to propose on an interim basis PE inputs for these codes in the nonfacility setting in our final rule. (vii) Nonfacility Inputs for CPT Code 52327 We received comments from the society representing urologists requesting that we remove all of the nonfacility PE inputs for CPT code 52327, Cystourethroscopy (including ureteral catheterization); with subureteric injection of implant material . The specialty society reasoned that the nonfacility PE value is inappropriate since the procedure is never performed in the physician office; it is specific to the pediatric population; and, as such, is always performed with general anesthesia. We agree with the specialty society that this procedure is incorrectly valued for the nonfacility setting and propose to accept their recommendation to remove the nonfacility direct PE inputs and have revised the PE database accordingly. (viii) Maxillofacial Prosthetics We have been working with the society representing maxillofacial prosthetists since 2005 to establish nonfacility direct inputs for the prosthetic services represented by the CPT code series, 21076 through 21087. The current PE database reflects the labor, supplies, and equipment needed to perform each procedure. However, we do not have pricing information and documentation for many supply items. The society provided information and documentation for equipment prices, but because specific time-in-use information was not provided, we developed time-in-use in 2006 for each equipment item in each procedure. For CY 2007, these equipment inputs were utilized under the new PE methodology to calculate the nonfacility PE RVUs for these procedures. We have asked the specialty society to provide the supply pricing information with appropriate documentation and also to provide accurate time-in-use data for each equipment item for each procedure. However, we have not received the requested information to date. Consequently, unless such information is provided, the PE database will continue to have no prices associated with these supplies. For each equipment item, we propose to cap each time-in-use to 25 minutes until specific information is received regarding the actual time-in-use. See Table 3 for the outstanding supply prices and Table 4 for the equipment time-in-use information that is needed. Table 3.—Maxillofacial Prosthesis Supplies Needing Pricing and Supporting Documentation Supply item CPT codes associated with supply item paper, articulating 21076, 21079, 21081, 21082, 21083, 21084, and 21085. paste, registration 21076, 21079, 21080, 21081, 21082, 21083, 21084, and 21085. alloy framework, laboratory processing 21076, 21079, 21080, 21081, 21082, 21083, 21084, and 21085. paste, pressure indicator 21076, 21079, 21080, 21081, 21082, 21083, 21084, and 21085. wax, boxing 21076, 21077, 21079, 21081, 21082, 21083, 21084, 21085, 21086 and 21087. triad tray material 21076, 21082, 21083 and 21084. wire, orthodontic 21076, 21079, 21080 and 21085. reline material, Trusoft 21076, 21079, 21081, 21082, 21083 and 21084. silicone 21077, 21086 and 21087. adhesive, facial 21077, 21080, 21086 and 21087. wax, baseplate 21077, 21079, 21080, 21081, 21082, 21083, 21084, 21085, 21086 and 21087. impression material, final 21077, 21080, 21081, 21082, 21083, 21084, 21085, 21086 and 21087. monoplex eye 21077, 21080, 21086 and 21087. syringe, impression 21077, 21079, 21080, 21081, 21082, 21083, 21084, 21085, 21086 and 21087. acrylic, dental 21077, 21079, 21080, 21081, 21082, 21082, 21083, 21084, 21085, 21086 and 21087. polyurethane sheets (quantity as rolls) 21077, 21080, 21086, and 21087. burs, dental 21079, 21080, 21081, 21082, 21083, 21084 and 21085. teeth set 21079, 21080 and 21081. Greenstick compound 21080, 21081, 21082, 21083, 21084 and 21085. * CPT codes and descriptions only are copyright 2007 American Medical Association. All Rights Reserved. Applicable FARS/DFARS apply. Table 4.—Equipment Time-in-Use Information Needed for Maxillofacial Prosthesis Codes Procedures Noted Below With an X Equipment Item CPT code 21076 CPT code 21077 CPT code 21079 CPT code 21080 CPT code 21081 CPT code 21082 CPT code 21083 CPT code 21084 CPT code 21085 CPT code 21086 CPT code 21087 Articulator X X X X X X X X X X X Chair, dental w-upholstery X X X X X X X X X X X Compressor air X X X X X X X X X X X Convection oven X X X Delivery unit X X X X X X X X X X X Dust collecting unit X X X X X X X X X X X Grinding and polishing unit X X X X X X X X X X X Handpiece, highspeed X X X X X X X X Handpiece, laboratory X X X X X X X X X X X Handpiece, slow speed X X X X X X X X Light curing unit X X X X X X X X X X X Light, dental, ceiling mount X X X X X X X X X X X Steamer, portable X X X X X X X X X X X Triad unit X X X X X X X X X X X Trimmer, dental model X X X X X X X X X X X Ultrasonic cleaning unit X X X X X X X X Washout and curing unit X X X X X X X X Whip mix combo unit X X X X X X X X X X X Whip mixer X X X X X X X X X X X * CPT codes and descriptions only are copyright 2007 American Medical Association. All Rights Reserved. Applicable FARS/DFARS apply. (ix) Requests for Increases in Supply Prices We received a request from the specialty society for obstetrics and gynecology to increase the price of supply item (kit, hysteroscopic tubal implant for sterilization) for CPT code 58565, Hysteroscopy, surgical; with bilateral fallopian tube cannulation to induce occlusion by placement of permanent implants for this code which was created for CY 2005. This hysteroscopic implant kit is priced at $980 and the specialty is now requesting a price of $1,245, providing an invoice for documentation. The specialty reports that the higher price is attributed to a manufacturer change in design and materials and submitted the manufacturer's documents supporting these changes that were used to secure FDA approval. Therefore, we are proposing to accept the new price of $1,245 for the hysteroscopic implant kit due to the changes made in the modified model and have made this change in the PE database. (x) Supply and Equipment Items Needing Specialty Input We have identified certain supply and equipment items for which we were unable to verify the pricing information (see Table 5: Supply Items Needing Specialty Input for Pricing and Table 6: Equipment Items Needing Specialty Input for Pricing). During the CY 2007 PFS rulemaking, we listed both supply and equipment items for which pricing documentation was needed from the medical specialty societies and, for many of these items, we received sufficient documentation containing specific descriptors and pricing information in the form of catalog listings, vendor Web pages, invoices, and manufacturer quotes. We have accepted the documented prices for many of these items and these prices are reflected in the PE RVUs in Addendum B of this proposed rule. The items listed in Tables 6 and 7 represent the outstanding items from CY 2007 and new items added from the current RUC recommendations. We are requesting that commenters provide pricing information on items in these tables along with acceptable documentation, as noted in the footnote to each table, to support recommended prices. We are also requesting that specialty societies review the direct inputs in PE database for the procedures performed by the specialty to verify that all supplies and equipment contain prices. For supplies or equipment that have previously appeared on this list, and for which we received no or inadequate documentation, we are proposing to delete these items unless we receive adequate information to support current pricing by the conclusion of the comment period for this proposed rule. Table 5.—Supply Items Needing Specialty Input for Pricing Code 2006/7 Description Unit Unit price Primary associated specialties Associated *CPT code(s) Prior item status on table Commenter response and CMS action 2008 Item status refer to note(s) SC088 Fistula set, dialysis, 17g item Dermatology 36522 Yes Specialty to submit asap B SD140 pressure bag item 8.925 Cardiology 93501, 93508, 93510, 93526 Yes Specialty to submit asap B, C SL119 Sealant spray oz Radiation Oncology 77333 Yes Specialty to submit price per ounce, asap B SD213 tubing, sterile, non-vented (fluid administration) item 1.99 Cardiology 93501, 93508, 93510, 93526 Yes Specialty to submit asap B, C Stent, vascular, deployment system Kit $1,645 Radiology, Interventional Radiology 37205, 37206 No Specialty to submit price, kit contents and typical quantity needed A * CPT codes and descriptions only are copyright 2007 American Medical Association. All Rights Reserved. Applicable FARS/DFARS apply. Note: Acceptable documentation includes—Detailed description (including system components), source, and current pricing information, such as copies of catalog pages, hard copy from specific web pages, invoices, and quotes (letter format okay) from manufacturer, vendors or distributors. Unacceptable documentation includes—phone numbers and addresses of manufacturer, vendors or distributors, website links without pricing information, etc. Note A: Additional documentation required. Need detailed description (including kit contents), source, and current pricing information (including pricing per specified unit of measure in database). Accept copies of catalog pages or hard copy from specific Web pages. Phone numbers or addresses of manufacturer, vendors or distributors are not acceptable documentation. Note B: No/Insufficient received. Retained price in database on an interim basis. Forward acceptable documentation promptly. Note C: Submitted price accepted. Note D: Deleted per comment or CMS. Note E: 2007/8 price retained on an interim basis. Forward acceptable documentation promptly. Table 6.—Equipment Items Needing Specialty Input for Pricing and Proposed Deletions Code 2006/7 Description 2007/8 Price Primary specialties associated with item * CPT code(s) associated with item Prior status on table Commenter response and CMS Action 2008 Item status refer to note(s) EQ269 Ambulatory blood pressure monitor 3000 Cardiology 93784, 93786, 93788 Yes Interim price of $1920 basis maintained, pending receipt of documentation A, E Camera mount-floor 2300 Dermatology 96904 Yes Specialty to submit, asap A, E Cross slide attachment 500 Dermatology 96904 Yes Specialty to submit, asap A, E Dermal imaging software 4500 Dermatology 96904 Yes Specialty to submit, asap A, E Dermoscopy attachments 650 Dermatology 96904 Yes Specialty to submit, asap A, E EQ008 ECG signal averaging system 8,250 Cardiology, IM 93278 Yes Interim price of $17,900 basis maintained, pending receipt of documentation A, E Lens, macro, 35-70mm Dermatology 96904 Yes Specialty to submit, asap A, E plasma pheresis machine w/UV light source 37,900 Radiology, Dermatology 36481, G0341 Yes Specialty to submit, asap A, E ED039 Psychology Testing Equipment Psychology 96101, 96102 No Specialty to submit, asap A, E ER070 Portal imaging system (w/PC work station and software) 377,319 Radiation oncology 77421 Yes Specialty to submit, asap A, E Strobe, 400watts (Studio)(2) 1500 Dermatology 96904 Yes Specialty to submit, asap A, E * CPT codes and descriptions only are copyright 2007 American Medical Association. All Rights Reserved. Applicable FARS/DFARS apply. Note: Acceptable documentation includes—Detailed description (including system components), source, and current pricing information, such as copies of catalog pages, hard copy from specific web pages, invoices, and quotes (letter format okay) from manufacturer, vendors or distributors. Unacceptable documentation includes—phone numbers and addresses of manufacturer, vendors or distributors, website links without pricing information, etc. Note A: Additional documentation required. Need detailed description (including kit contents), source, and current pricing information (including pricing per specified unit of measure in database). Accept copies of catalog pages or hard copy from specific Web pages. Phone numbers or addresses of manufacturer, vendors or distributors are not acceptable documentation. Note B: No/Insufficient received. Retained price in database on an interim basis. Forward acceptable documentation promptly. Note C: Submitted price accepted. Note D: Deleted per comment or CMS. Note E: 2007/8 price, where specified, retained on an interim basis. Forward acceptable documentation promptly. B. Geographic Practice Cost Indices (GPCIs) [If you choose to comment on issues in this section, please include the caption “GEOGRAPHIC PRACTICE COST INDICES (GPCIs)” at the beginning of your comments.] We are required by section 1848(e)(1)(A) and (C) of the Act to develop separate Geographic Practice Cost Indices (GPCIs) to measure resource cost differences among localities; and, to review and, if necessary, adjust the GPCIs at least every 3 years. We have completed the review of GPCIs for CY 2008 and are proposing new GPCIs. These proposed GPCIs are published in Addendum E. We note that the physician work GPCIs listed in Addendum E do not reflect the 1.000 floor that was in place during 2006 and 2007. This floor expires as of January 1, 2008 in accordance with section 102 of the MIEA-TRHCA. In developing a GPCI, section 1848(e)(1)(A)(i) and (ii) of the Act require that the PE and malpractice (MP) GPCIs reflect the full relative cost difference while section 1848(e)(1)(A)(iii) of the Act requires that the physician work GPCIs reflect only one-quarter of the relative cost differences. Section 1848(e)(1)(C) of the Act also specifies that if more than 1 year has elapsed since the last GPCI revision, we must phase in the adjustment over 2 years, applying only one-half of any adjustment in each year. All GPCIs are developed through a comparison to a national average for each component, and the RVUs for different services uniformly weight each component. 1. GPCI Update A detailed description of the methodology used to develop and update the GPCIs can be found in the CY 2004 PFS proposed rule (68 FR 49039, August 15, 2003). There are three components of the GPCIs (physician work, PE, and MP) and each relies on its own data source. a. Physician Work The physician work GPCI is developed using the median hourly earnings from the 2000 Census of workers in six professional specialty occupation categories which we use as a proxy for physician wages and calculate to reflect one-quarter of the relative cost differences. Physician wages are not included in the occupation categories because Medicare payments are a key determinant of physicians' earnings; therefore, including physician wages in the physician work GPCI would, in effect, make the index dependent upon Medicare payments. The physician work GPCI was updated in 2001, 2003, and 2005 using data from the 2000 Census; the proposed CY 2008 physician work GPCI is also based on the 2000 Census data. Because all updates since 2001 have relied on the 2000 Census data, the changes observed in the physician work GPCI in the update years are due to minor changes in utilization and budget neutrality factors; for 2008, Addendum E shows that there have been small changes in the physician work GPCI. Section 102 of the MIEA-TRHCA required application of a 1.000 floor on the work GPCI in payment localities where the work GPCI was less than 1.000. This provision expires on December 31, 2006. The 2008 proposed physician work GPCI reflects the removal of this floor. b. Practice Expense The PE GPCI is developed from three data sources: (i) Employee Wages: We use 2000 Census median hourly earnings of four occupation categories. The physician work GPCI was updated in 2001, 2003, and 2005 using data from the 2000 Census. (ii) Office Rents: We use residential apartment rental data produced annually by the Department of Housing and Urban Development (HUD) as a proxy for physician office rents. In 2001, 2003, and 2005, we used rents in the HUD 40th percentile. In 2008, we have calculated the GPCI using rents in the 50th percentile for the physician office rent proxy. We are proposing to use the 50th percentile because although HUD generally allows payment for subsidized housing up to the 40th percentile, in some areas it allows payment up to the 50th percentile. We made this change to reflect the trend toward higher rents across the country. Fair Market Rents (FMRs) are gross rent estimates including rent and utilities. HUD calculates the FMRs annually using: (1) Decennial Census data; (2) American Housing Surveys conducted by the Census Bureau for HUD to enable HUD to develop revisions between Census years; and (3) random-digit dial surveys to enable HUD to develop gross rent change factors. The American Housing Surveys cover 11 areas annually, rotating among the 44 largest metropolitan areas. The random-digit dial component surveys 60 FMR areas annually. The FMR is set as a percentile point in the distribution of rents for standard housing occupied by people who moved within the previous 15 months. The current FMR definition is the 40th percentile rent (the amount below which 40 percent of units are rented). Each year, the 50th percentile rent is also calculated by HUD and available through the HUDUSER Web site. In 2000, HUD changed its FMR policy to increase access to housing for families receiving Section 8 rent subsidy vouchers (65 FR 58870). To do so, HUD increased FMRs from the 40th percentile to the 50th percentile in areas where subsidized families were highly concentrated in certain census tracts, given evidence that affordable housing was not well-distributed. Only metropolitan areas with more than 100 census tracts are considered for possible increase to the 50th percentile rent. FMRs can be moved from 40th to 50th percentile or back from 50th to 40th percentile. In the case of the office rent index for the PE GPCI, FMRs have been used to capture geographic differences in rental costs, in the absence of a consistent commercial rent index that covers all metropolitan and nonmetropolitan areas in the U.S. It has been used as a measure of the “average rent” in a market. However, since 2000, the FMRs have been a mixture of the 40th percentile and 50th percentile rents. FMR areas move between the two cutoffs. For example, in California, 9 counties had FMRs set at the 50th percentile in 2004. In 2007, only 2 of these 9 counties were still at the 50th percentile level for the FMR, out of 4 total counties at the 50th percentile level. As described above in this section (and as detailed in 65 FR 58870), the criteria for setting the FMR at the 40th or 50th percentile are based on concentrations of subsidized households. There is no reason to assume that commercial rents would follow the same patterns. Therefore, we believe the 50th percentile, or median, rents calculated by HUD will be a more consistent, fair measure of geographic differences for the purpose of proxying for commercial rents. Rent data produce the most significant changes because they are based on annual changes in HUD rents and are therefore more volatile than the wage (Census) data. While commenters have suggested that we explore sources of commercial rental data for use in the GPCI, we do not believe there is a national data source better than the HUD data. (iii) Equipment and Supplies: We assume that items such as medical equipment and supplies have a national market and that input prices do not vary among geographic areas. As mentioned in previous updates, some price differences may exist, but we believe these differences are more likely to be based on volume discounts rather than on geographic market differences. Equipment and supplies are factored into the GPCIs with a component index of 1.000. c. Malpractice The MP GPCI is calculated based on insurer rate filings of premium data for a $1 million to $3 million mature “claims made” policy along with premium or surcharge data for mandatory patient compensation funds (PCFs). The MP GPCI is the most volatile of the GPCIs. This GPCI was updated in 2001 and 2003 as scheduled with the physician work and PE GPCIs; but, there was an unscheduled update of the MP GPCI in 2004 (68 FR 49043) to reflect increases in MP premiums nationwide. The 2008 MP update reflects the most recent premium data available. The physician work and PE GPCIs are being updated at the same time. The periodic review and adjustment of GPCIs is mandated by section 1848(e)(1)(C) of the Act. At each update, the proposed GPCIs are published in our PFS proposed rule the year before they would take effect in order to provide an opportunity for public comment and further revisions in response to comments prior to implementation. As mentioned above, these proposed GPCIs are shown in Addendum D. 2. Payment Localities a. Background The Medicare statute requires that PFS payments be adjusted for certain differences in the relative costs among areas. The statute requires an adjustment which reflects differences among areas for the relative costs of the mix of goods and services comprising PEs (other than MP expenses) compared to the national average. The statute also requires adjustment for the relative costs of MP expenses among areas compared to the national average. Finally, the statute requires adjustment for one-quarter of the difference between the relative value of physicians' work effort among areas and the national average of such work effort. The physician work component represents 52.466 percent of the national average fee schedule payment amount. Thus, the statutory requirement for geographic adjustment of only one-quarter of the differences in the physician work component means that, on average, only 13.117 percentage points of physician work are geographically adjusted, and, on average 39.349 percentage points of the physician work component are not adjusted and represent a national fee schedule amount. In addition, the PE component represents 43.669 percent of the national average fee schedule payment amount. PEs are comprised of nonphysician employee compensation, office expenses (including rent), medical equipment, drugs and supplies, and other expenses. As explained above in this section, we do not make a geographic adjustment relating to medical equipment, drugs, and supplies because there is a national marker for these items. Thus, only the categories of nonphysician employee compensation and rents are geographically adjusted. These categories represent, on average, 30.862 percentage points of the total PE, and 12.807 percentage points of PEs are not geographically adjusted. In total, more than half (52.156 percent) of the average PFS amount is a national payment that is the same in all areas of the country; that is, 52.156 percent of the average fee is not geographically adjusted. There are two additional points about the geographic indices that are important to note. First, as described above in this section, the data used to measure cost differences among localities are proxies for physician work, employee compensation and office rents. That is, wage data for various categories of employees are used to proxy the actual wages of physician employees. Second, the data used for such proxies are based on actual Census data only for a limited number of counties. The geographic adjustment factors (GAFs) for more than 90 percent of counties are developed using proxies based on larger geographic areas (for example, data for all rural areas in a State are combined and used to proxy the values for each rural county in a State). This aggregation is necessary for areas where county level data are not available. Thus, the underlying data are proxies for actual costs, and the resulting GPCIs do not measure perfectly the cost differences among localities. Currently, there are 89 Medicare physician payment localities to which GPCIs are applied. The payment locality structure under the PFS was established in 1996 and took effect January 1, 1997. The development of this structure is described in detail in both the CY 1997 PFS proposed (61 FR 34615) and final rules (61 FR 59494). Before adoption of the current structure, there were 210 separate payment localities under the PFS. The 1997 payment locality revision was based and built upon the prior locality structure. The 22 then-existing statewide localities remained statewide localities. Localities were established in the remaining 28 States by comparing the area cost differences of the localities within these States. We ranked the existing localities within these remaining 28 States by costs in descending order. The GAF of the highest cost locality within a State was compared to the weighted average GAF of lower price localities. If the difference between these GAFs exceeded 5 percent, the highest locality remained a distinct locality. If the GAFs associated with all the localities in a State did not vary by at least 5 percent, the State became a statewide locality. If the highest-priced locality remained a distinct locality, the process was repeated for the second highest price locality and so on until the variation among remaining localities fell below the 5 percent threshold. This ensured that the statewide or residual State locality has relatively homogenous resource costs. Subsequent to this process, 3 additional States with multiple localities were converted to statewide localities. Currently, there are 89 separate payment localities of which 34 are statewide. Recognizing that the GPCIs are necessarily proxies, this revision to the locality structure accomplished our major goals of appropriately paying for services furnished to Medicare beneficiaries, and simplifying payment areas. b. Revision of Payment Localities Over time, changing demographics and local economic conditions may lead to increased variations in practice costs within payment locality boundaries. We are concerned about the potential impact of these variations and have been studying this issue and potential alternatives for a number of years. However, because changes to the GPCIs must be applied in a budget neutral manner (and under the current locality system, BN results in aggregate payments within each State remaining the same), there are significant redistributive effects to any change. Therefore, we are also concerned about the potential impact of locality revisions. For the past several years, we have been involved in discussions with California physicians and their representatives about recent shifts in relative demographics and economic conditions among a number of counties within the current California payment locality structure. The California Medical Association (CMA) suggested that we use our demonstration authority to adopt an alternative locality configuration and avoid certain redistributive effects, but such an approach was not feasible (as discussed in the CY 2005 PFS final rule with comment period (70 FR 70151)). In the CY 2006 PFS proposed rule (70 FR 45784), we proposed to remove two counties from the “Rest of California” payment locality and create a new payment locality for each county. These two counties were the ones with the largest difference between the county and locality GAFs. However, there was much more opposition than support for this proposal, in large part because of its negative effect on payments for the counties that would have remained in the “Rest of California” locality. For example, the CMA commented on this proposal stating, “a nationwide legislative solution that would provide additional funding * * * is the only solution we are supporting at this time.” We did not finalize the proposal and described our reasons in the CY 2006 PFS final rule with comment period (70 FR 70151). As indicated previously, we recognize that changing demographics and local economic conditions may lead to increased variations in practice costs within payment locality boundaries. We are concerned about the potential impact of these variations. But, we are also concerned about the redistributive effects of locality changes since changes must be applied in a budget neutral manner (and under the current locality system, BN results in aggregate payments within each State remaining the same). In considering potential changes in payment localities, we believe it is important to evaluate both the potential impact of intralocality practice cost variations and the redistributive impacts. Therefore, we have identified and are soliciting comments on three possible locality reconfigurations, each of which strikes a different balance between intralocality variations and redistributive impacts. We are considering adopting one of these approaches for California in the final rule. Because of the importance of striking an appropriate balance with any such locality revisions, we want to proceed cautiously and evaluate the impacts in California before considering applying the policy more broadly in the future. We also seek comments about other potential approaches to locality revisions and about using a transition to phase-in changes in a new locality structure blending new and revised payments. We note that a transition could be complicated to administer, particularly with a concurrent 2-year phase in of the new GPCI data. The three options are described as follows: Option 1: Using the existing locality structure, apply a rule whereby if a county GAF is more than 5 percent greater that GAF for the locality in which the county resides it would be removed from the current locality. A separate locality would be established for each county that is removed. Based on the new fully phased-in GPCI data (that is, for CY 2009), application of this approach in California would remove three counties (Santa Cruz, Monterey, and Sonoma) from the Rest of California payment locality and Marin county from the Marin/Napa/Solano payment locality and create separate payment localities for each of these counties. This approach focuses on counties for which there is the biggest difference between the county GAF and the locality GAF. Since we are considering applying this approach initially in California, Table 7 shows the impact for each of the counties and the Rest of California payment and Marin/Napa/Solano payment localities. TABLE 7.—Option 1—Apply 5 Percent Threshold To Remove Counties From Their Current Payment Localities, California Impact Locality name County name New CY 2009 GAF, no locality change New CY 2009 GAF, with locality change Percent change, due to locality change Santa Cruz Santa Cruz 1.017 1.100 7.59% Monterey Monterey 1.017 1.080 5.83% Sonoma Sonoma 1.017 1.076 5.51% Marin Marin 1.112 1.173 5.19% Napa/Solano Solano 1.112 1.066 −4.33% Napa/Solano Napa 1.112 1.066 −4.33% Rest of California 1.017 1.012 −0.49% This proposal is similar to the policy we previously proposed in the CY 2006 PFS proposed rule (70 FR 45784) (but, as discussed above in this section, we did not adopt in the final rule) to address the counties with GAFs that are most different from their current locality designation. At that time, we only considered the two counties with the greatest difference between the county and locality GAF—Santa Cruz and Sonoma. Given the new GAF data, we are again considering this approach to address locality issues, but we would make adjustments to any county in California in which the county GAF exceeds the locality GAF by more than 5 percent. Table 7 shows the impacts using fully phased-in CY 2009 GPCIs that would apply using the new GPCI data discussed in this proposed rule. The table compares the changes that would occur in CY 2009 under the current locality structure with those that would occur under option 1. The table shows that compared to the fully phased-in CY 2009 GAFs that would occur under the current locality structure, under this option, the GAFs for Santa Cruz, Monterey and Sonoma would increase by 7.59 percent, 5.83 percent, and 5.51 percent respectively, and the GAF for the Rest of California locality would decrease by 0.49 percent. The GAF for Marin would increase by 5.19 percent while the GAF for Napa/Solano would decrease by 4.33 percent. The GAFs for all other California localities would not change. Option 2: This approach is similar to option 1, but the new localities would be structured differently. We would use the same 5 percent threshold methodology but instead of creating four new localities in which each county becomes its own new locality, the three counties that are removed from the Rest of California locality would become one new locality. Marin County would still be removed from the Marin/Napa/Solano locality to become its own locality. Application of this approach would remove three counties (Santa Cruz, Sonoma, and Monterey) from the Rest of California payment locality, and Marin County from the existing Marin/Napa/Solano payment locality. This approach groups together counties from the Rest of California locality that have the greatest difference between the county and locality GAF. These three counties have similar cost structures and grouping them together into one new locality is consistent with our goal of homogeneous resource costs within a locality. In addition, it creates fewer localities which is administratively simpler for both the Medicare program and for physicians who might practice in multiple localities. Again, since we are considering applying this approach initially in California, Table 8 shows the impact, using fully phased-in CY 2009 GPCIs, for each of the new localities and for the localities that would remain. The table shows that compared to the fully phased-in CY 2009 GAFs that would occur under the current locality structure, under this option, the GAFs for the new Santa Cruz/Sonoma/Monterey locality would increase by 6.3 percent, and the GAF for the Marin County locality would increase by 5.19 percent. The GAFs would decrease by 0.49 percent for the Rest of California locality and by 4.33 percent for the Napa/Solano locality. Table 8.—Option 2—Apply Five Percent Threshold To Remove Counties From Their Current Payment Localities, California Impact, Create Two New Localities Locality name County name CY 2009 county GAF CY 2009 GAF, no locality change CY 2009 GAF, with locality change Percent change, CY 2009 GAF, with locality change Marin Marin 1.173 1.112 1.173 5.19 Napa/Solano Napa 1.080 1.112 1.066 −4.33 Napa/Solano Solano 1.053 1.112 1.066 −4.33 Santa Cruz/Monterey/Sonoma Santa Cruz 1.100 1.017 1.082 6.03 Santa Cruz/Monterey/Sonoma Sonoma 1.076 1.017 1.082 6.03 Santa Cruz/Monterey/Sonoma Monterey 1.080 1.017 1.082 6.03 Rest of California 1.017 1.017 1.012 −0.049 Option 3: Apply a methodology similar to that used in the 1997 locality revisions, but applied at the county level rather than the “existing locality” level. That is, we sorted the counties by descending GAFs and compared the highest county to the second highest. If the difference is less than 5 percent, the counties were included in the same locality. The third highest is then compared to the highest county GAF. This iterative process continues until a county has a GAF difference that is more than 5 percent. When this occurs, that county becomes the highest county in a new payment locality and the process is repeated for all counties in the State. This methodology is also described in the CY 2006 PFS final rule with comment period (70 FR 70151). This approach would group counties within a State into localities based on similarity of GAFs even if the counties were not geographically contiguous. This is a numerical organization of payment localities based on costs which will reduce the number of payment localities in California from 9 to 6 localities and will create a structure where areas with similar costs will be grouped together. This option alleviates the greatest variations in cost between counties in California. This proposal is unique in that the new localities are not contiguous. Currently, all localities encompass adjacent geographic areas. However, Table 9 shows that for most of the counties in California, geographic relationships are maintained within payment groups. While this option groups counties with similar costs together, it does not address the issue of a county or locality that has costs very different from those of an adjoining county or locality. Under this option, it will stil [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A07-3274. Public record. Not legal advice.