Medicare Program; Revisions to Payment Policies and Adjustments to the Relative Value Units Under the Physician Fee Schedule for Calendar Year 1999

SUMMARY: This final rule makes several policy changes affecting

Medicare Part B payment. The changes that relate to physicians'

services include: resource-based practice expense relative value units

(RVUs), medical direction rules for anesthesia services, and payment

for abnormal Pap smears. Also, we are rebasing the Medicare Economic

Index from a 1989 base year to a 1996 base year. Under the law, we are

required to develop a resource-based system for determining practice

expense RVUs. The Balanced Budget Act of 1997 (BBA) delayed, for 1

year, implementation of the resource-based practice expense RVUs until

January 1, 1999. Also, BBA revised our payment policy for nonphysician

practitioners, for outpatient rehabilitation services, and for drugs

and biologicals not paid on a cost or prospective payment basis. In

addition, BBA permits certain physicians and practitioners to opt out

of Medicare and furnish covered services to Medicare beneficiaries

through private contracts and permits payment for professional

consultations via interactive telecommunication systems. Furthermore,

we are finalizing the 1998 interim RVUs and are issuing interim RVUs

for new and revised codes for 1999. This final rule also announces the

calendar year 1999 Medicare physician fee schedule conversion factor

under the Medicare Supplementary Medical Insurance (Part B) program as

required by section 1848(d) of the Social Security Act. The 1999

Medicare physician fee schedule conversion factor is $34.7315.

DATES: Effective date: This rule this rule is effective January 1,

1999.

Applicability date: Part 405 subpart D is applicable for private

contract affidavits signed and private contracts entered into on or

after January 1, 1999.

This rule is a major rule as defined in Title 5, United States

Code, section 804(2). Pursuant to 5 U.S.C. section 801(a)(1)(A), we are

submitting a report to the Congress on this rule on October 30, 1998.

Comment date: We will accept comments on interim RVUs for selected

procedure codes identified in Addendum C and on interim practice

expense RVUs for all codes as shown in Addendum B. Comments will be

considered if we receive them at the appropriate address, as provided

below, no later than 5 p.m. on January 4, 1999.

ADDRESSES: Mail written comments (1 original and 3 copies) to the

following address: Health Care Financing Administration, Department of

Health and Human Services, Attention: HCFA-1006-FC, P.O. Box 26688,

Baltimore, MD 21207-0488.

If you prefer, you may deliver your written comments (1 original

and 3 copies) to one of the following addresses:

Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,

Washington, DC 20201, or

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

Because of staffing and resource limitations, we cannot accept

comments by facsimile (FAX) transmission. In commenting, please refer

to file code HCFA-1006-FC. Comments received timely will be available

for public inspection as they are received, generally beginning

approximately 3 weeks after publication of a document, in Room 443-G of

the Department's offices at 200 Independence Avenue, SW., Washington,

DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m.

(phone: (202) 690-7890).

FOR FURTHER INFORMATION CONTACT:

Roberta Epps, (410) 786-4503 (for issues related to outpatient

rehabilitation services).

Stephen Heffler, (410) 786-1211 (for issues related to the Medicare

Economic Index).

Anita Heygster, (410) 786-4486 (for issues related to private

contracts).

Jim Menas, (410) 786-4507 (for issues related to Pap smears and medical

direction for anesthesia services).

Robert Niemann, (410) 786-4569 (for issues related to the drugs and

biologicals policy).

Regina Walker-Wren, (410) 786-9160 (for issues related to physician

assistants, nurse practitioners, clinical nurse specialists, and

certified nurse-midwives).

Craig Dobyski, (410) 786-4584 (for issues related to

teleconsultations).

Stanley Weintraub, (410) 786-4498 (for issues related to practice

expense relative value units and all other issues).

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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 not exclusively in part IX.

Table of Contents

I. Background

A. Legislative History

B. Published Changes to the Fee Schedule

II. Specific Proposals for Calendar Year 1998; Response to Comments

A. Resource-Based Practice Expense Relative Value Units

1. Resource-Based Practice Expense Legislation

2. Proposed Methodology for Computing Practice Expense Relative

Value Units

3. Other Practice Expense Policies

[[Page 58815]]

4. Refinement of Practice Expense Relative Value Units

5. Reductions in Practice Expense Relative Value Units for

Multiple Procedures

6. Transition

B. Medical Direction for Anesthesia Services

C. Separate Payment for a Physician's Interpretation of an

Abnormal Papanicolaou Smear

D. Rebasing and Revising the Medicare Economic Index

III. Implementation of the Balanced Budget Act

A. Payment for Drugs and Biologicals

B. Private Contracting with Medicare Beneficiaries

C. Payment for Outpatient Rehabilitation Services

1. BBA 1997 Provisions Affecting Payment for Outpatient

Rehabilitation Services

a. Reasonable Cost-Based Payments

b. Prospective Payment System for Outpatient Rehabilitation

Services

(1) Overview

(2) Services Furnished by Skilled Nursing Facilities

(3) Services Furnished by Home Health Agencies

(4) Services Furnished by Comprehensive Outpatient

Rehabilitation Facilities

(5) Site-of-Service Differential

(6) Mandatory Assignment

2. Uniform Procedure Codes for Outpatient Rehabilitation

Services

3. Financial Limitation

a. Overview

b. Use of Modifiers to Track the Financial Limitation

c. Treatment of Services Exceeding the Financial Limitation

4. Qualified Therapists

5. Plan of Treatment

D. Payment for Services of Certain Nonphysician Practitioners

and Services Furnished Incident to their Professional Services

E. Payment for Teleconsultations in Rural Health Professional

Shortage Areas

IV. Refinement of Relative Value Units for Calendar Year 1999 and

Responses to Public Comments on Interim Relative Value Units for

1998

A. Summary of Issues Discussed Related to the Adjustment of

Relative Value Units

B. Process for Establishing Work Relative Value Units for the

1999 Fee Schedule

V. Physician Fee Schedule Update and Conversion Factor for Calendar

Year 1999

VI. Provisions of the Final Rule

VII. Collection of Information Requirements

VIII. Regulatory Impact Analysis

A. Regulatory Flexibility Act

B. Resource-Based Practice Expense Relative Value Units

C. Medical Direction for Anesthesia Services

D. Separate Payment for a Physician's Interpretation of an

Abnormal Papanicolaou Smear

E. Rebasing and Revising the Medicare Economic Index

F. Payment for Nurse Midwives' Services

G. BBA Provisions Included in This Proposed Rule

H. Impact on Beneficiaries

Addendum A--Explanation and Use of Addenda B and C

Addendum B--Relative Value Units (RVUs) and Related Information

Addendum C--Codes with Interim RVUs

In addition, because of the many organizations and terms to which

we refer by acronym in this final rule, we are listing these acronyms

and their corresponding terms in alphabetical order below:

AANA: American Association of Nurse Anesthetists

ABC: Activity based costing

ABN: Advance Beneficiary Notice

AHE: Average hourly earnings

AMA: American Medical Association

ANCC: American Nurses Credentialing Center

ASA: American Society of Anesthesiologists

ASOPA: American Society of Orthopedic Physician Assistants

AWP: Average wholesale price

BBA: Balanced Budget Act of 1997

BLS: Bureau of Labor Statistics

CAAHEP: Commission on Accreditation of Allied Health Education

Programs

CF: Conversion factor

CFR: Code of Federal Regulations

CMSAs: Consolidated Metropolitan Statistical Areas

CORF: Comprehensive outpatient rehabilitation facility

CPEPs: Clinical Practice Expert Panels

CPI: Consumer Price Index

CPI-U: Consumer Price Index for All Urban Consumers

CPS: Current Population Survey

CPT: [Physicians'] Current Procedural Terminology

CRNA: Certified Registered Nurse Anesthetist

DME: Durable medical equipment

DMEPOS: Durable medical equipment, prosthetics, orthotics, and

supplies

DRG: Diagnosis-related group

EAC: Estimated acquisition cost

ECI: Employment Cost Index

ES-202 Data: Bureau of Labor Statistics from State unemployment

insurance agencies

ESRD: End-stage renal disease

FDA: Food and Drug Administration

FMR: Fair market rental

FQHC: Federally qualified health center

GAAP: Generally accepted accounting principles

GAF: Geographic adjustment factor

GPCI: Geographic practice cost index

HCFA: Health Care Financing Administration

HCPAC: Health Care Professionals Advisory Committee

HCPCS: HCFA Common Procedure Coding System

HHA: Home health agency

HHS: [Department of] Health and Human Services

HMO: Health maintenance organization

HPSA: Health professional shortage area

HRSA: Health Resources and Services Administration

HUD: [Department of] Housing and Urban Development

IPLs: Independent Physiologic Laboratories

MedPAC: Medicare Payment Advisory Commission

MEI: Medicare Economic Index

MGMA: Medical Group Management Association

MSA: Metropolitan Statistical Area

MSA: Medicare Supplemental Insurance

MVPS: Medicare volume performance standard

NAIC: National Association of Insurance Commissioners

NBCOPA: National Board on Certification for Orthopedic Physician

Assistants

NCCPA: National Council on Certification of Physician Assistants

NPI: National provider identifier

OBRA: Omnibus Budget Reconciliation Act

OTIP: Occupational therapist in independent practice

PC: Professional component

PHS: Public Health Service

PMSA: Primary Metropolitan Statistical Area

PPI: Producer price index

PPS: Prospective payment system

PTIP: Physical therapist in independent practice

RBRVS: Resource Based Relative Value Scale

RHC: Rural health clinic

RUC: [AMA's Specialty Society] Relative [Value] Update Committee

RN: Registered nurse

RVU: Relative value unit

SMS: Socioeconomic Monitoring System

SNF: Skilled nursing facility

TC: Technical component

TEFRA: Tax Equity and Fiscal Responsibility Act

UPIN: Uniform provider identifier number

I. Background

A. Legislative History

Since January 1, 1992, Medicare has paid for physicians' services

under section 1848 of the Social Security Act (the Act), ``Payment for

Physicians' Services.'' This section contains three major elements: (1)

A fee schedule for the payment of physicians' services; (2) a

sustainable growth rate for the rates of increase in Medicare

expenditures for physicians' services; and (3) limits on the amounts

that nonparticipating physicians can charge beneficiaries. The Act

requires that payments under the fee schedule be based on national

uniform relative value units (RVUs) based on the resources used in

furnishing a service. Section 1848(c) of the Act requires that national

RVUs be established for physician work, practice expense, and

malpractice expense.

Section 1848(c)(2)(B)(ii)(II) of the Act provides that adjustments

in RVUs because of changes resulting from a review of those RVUs may

not cause total physician fee schedule payments to differ by more than

$20 million from what they would have been had the adjustments not been

made. If this tolerance is exceeded, we must make adjustments to the

conversion factors (CFs) to preserve budget neutrality.

[[Page 58816]]

B. Published Changes to the Fee Schedule

In the June 5, 1998, proposed rule (63 FR 30820), we listed all of

the final rules published through October 31, 1997 relating to the

updates to the RVUs and revisions to payment policies under the

physician fee schedule. In the June 5, 1998 proposed rule (63 FR

30818), we discussed several policy options affecting Medicare payment

for physicians' services including resource-based practice expense

RVUs, medical direction rules for anesthesia services, and payment for

abnormal Pap smears. Also, we discussed the rebasing of the Medicare

Economic Index from a 1989 base year to a 1996 base year. Further,

based on BBA, we proposed revising our payment policy for nonphysician

practitioners, for outpatient rehabilitation services, and for drugs

and biologicals not paid on a cost or prospective payment basis. In

addition, based on BBA, we discussed implementing new payment policies

for certain physicians and practitioners who opt out of Medicare and

furnish covered services to Medicare beneficiaries through private

contracts. And finally, based on BBA, we discussed teleconsultation

services.

This final rule affects the regulations set forth at 42 CFR part

405, which consists of regulations on Federal health insurance for the

aged and disabled; part 410, which consists of regulations on

supplementary medical insurance benefits; part 414, which consists of

regulations on the payment for Part B medical and other health

services; part 415, which pertains to services furnished by physicians

in providers, supervising physicians in teaching settings, and

residents in certain settings; part 424, which pertains to the

conditions for Medicare payment; and part 485, which pertains to

conditions of participation: specialized providers.

II. Specific Proposals for Calendar Year 1998; Response to Comments

In response to the publication of the June 5, 1998 proposed rule,

we received approximately 14,000 comments. We received comments from

individual physicians, health care workers, and professional

associations and societies. The majority of the comments addressed the

proposal related to the resource-based practice expense policy.

The proposed rule discussed policies that affect the number of RVUs

on which payment for certain services would be based. Certain changes

implemented through this final rule are subject to the $20 million

limitation on annual adjustments contained in section

1848(c)(2)(B)(ii)(II) of the Act.

After reviewing the comments and determining the policies we will

implement, we have estimated the costs and savings of these policies

and added those costs and savings to the estimated costs associated

with any other changes in RVUs for 1999. We discuss in detail the

effects of these changes in the Regulatory Impact Analysis (section

IX).

For the convenience of the reader, the headings for the policy

issues in this section correspond to the headings used in the June 5,

1998 proposed rule. More detailed background information for each issue

can be found in the June 5, 1998 proposed rule.

A. Resource-Based Practice Expense Relative Value Units

1. Resource-Based Practice Expense Legislation

Section 121 of the Social Security Act Amendments of 1994 (Public

Law 103-432), enacted on October 31, 1994, required us to develop a

methodology for determining resource-based practice expense RVUs for

each physician's service that would be effective for services furnished

in 1998. In developing the methodology, we were required to consider

the staff, equipment, and supplies used in providing medical and

surgical services in various settings.

The legislation specifically required that, in implementing the new

system of practice expense RVUs, we apply the same budget-neutrality

provisions that we apply to other adjustments under the physician fee

schedule.

On August 5, 1997, the President signed the BBA into law. Section

4505(a) of BBA delayed the effective date of the resource-based

practice expense RVU system until January 1, 1999. In addition, BBA

provided for the following revisions in the requirements to change from

a charge-based practice expense RVU system to a resource-based method.

Instead of paying for all services entirely under a resource-based

system in 1999, section 4505(b) of BBA provided for a 4-year transition

period. The practice expense RVUs for the year 1999 will be the product

of 75 percent of charge-based RVUs (1998) and 25 percent of the

resource-based RVUs. For the year 2000, the percentages will be 50

percent charge-based and 50 percent resource-based. For the year 2001,

the percentages will be 25 percent charge-based and 75 percent

resource-based. For subsequent years, the RVUs will be totally

resource-based.

Section 4505(e) of BBA provided that, for 1998, the practice

expense RVUs be adjusted for certain services in anticipation of the

implementation of resource-based practice expenses beginning in 1999.

Practice expense RVUs for office visits were increased.

For other services whose practice expense RVUs (determined for

1998) exceeded 110 percent of the work RVUs and were provided less than

75 percent of the time in an office setting, the 1998 practice expense

RVUs were reduced to a number equal to 110 percent of the work RVUs.

This limitation did not apply to services that had a proposed resource-

based practice expense RVU in the June 5, 1998 proposed rule that was

an increase from its 1997 practice expense RVU.

The total of the reductions under this provision was less than the

statutory maximum of $390 million. The procedure codes affected and the

final RVUs for 1998 were published in the October 31, 1997 final rule

(62 FR 59103).

Section 4505(d)(2) of BBA required that the Secretary transmit a

report to the Congress by March 1, 1998, including a presentation of

data to be used in developing the practice expense RVUs and an

explanation of the methodology. A report was submitted to the Congress

in early March 1998. Section 4505(d)(3) required that a proposed rule

be published by May 1, 1998, with a 90-day comment period. For the

transition to begin on January 1, 1999, a final rule must be published

by October 30, 1998.

BBA also required that we develop new resource-based practice

expense RVUs. In developing these new practice expense RVUs, section

4505(d)(1) required us to--

Utilize, to the maximum extent practicable, generally

accepted accounting principles that recognize all staff, equipment,

supplies, and expenses, not just those that can be tied to specific

procedures, and use actual data on equipment utilization and other key

assumptions;

Consult with organizations representing physicians

regarding the methodology and data to be used; and

Develop a refinement process to be used during each of the

four years of the transition period.

2. Proposed Methodology for Computing Practice Expense Relative Value

Units

(See Addendum B in the June 5, 1998 proposed rule (63 FR 30888) for a

detailed technical description of the proposed methodology.)

In the June 5, 1998 proposed rule (63 FR 30827), we proposed a

methodology

[[Page 58817]]

for computing resource-based practice expense RVUs that uses the two

significant sources of actual practice expense data we have available:

the Clinical Practice Expert Panel (CPEP) data and the American Medical

Association's (AMA's) Socioeconomic Monitoring System (SMS) data. This

methodology is based on an assumption that current aggregate specialty

practice costs are a reasonable way to establish initial estimates of

relative resource costs of physicians' services across specialties. It

then allocates these aggregate specialty practice costs to specific

procedures and, thus, can be seen as a ``top-down'' approach.

Practice Expense Cost Pools

We used actual practice expense data by specialty, derived from the

1995 through 1997 SMS survey data, to create six cost pools:

administrative labor, clinical labor, medical supplies, medical

equipment, office supplies, and all other expenses. There were three

steps in the creation of the cost pools.

Step 1: We used the AMA's SMS survey of actual cost data to

determine practice expenses per hour by cost category. The practice

expenses per hour for each physician respondent's practice was

calculated as the practice expenses for the practice divided by the

total number of hours spent in patient care activities by the

physicians in the practice. The practice expenses per hour for the

specialty are an average of the practice expenses per hour for the

respondent physicians in that specialty.

Step 2: We determined the total number of physician hours, by

specialty, spent treating Medicare patients. This was calculated from

physician time data for each procedure code and the Medicare claims

data. The primary sources for the physician time data were surveys

submitted to the AMA's Specialty Society Relative Value Update

Committee (RUC) and surveys done by Harvard for the initial

establishment of the work RVUs.

Step 3: We then calculated the practice expense pools by specialty

and by cost category by multiplying the practice expenses per hour for

each category by the total physician hours.

Cost Allocation Methodology

For each specialty, we separated the six practice expense pools

into two groups and used a different allocation basis for each group.

For group one, which includes clinical labor, medical

supplies, and medical equipment, we used the CPEP data as the

allocation basis. The CPEP data for clinical labor, medical supplies,

and medical equipment were used to allocate the clinical labor, medical

supplies, and medical equipment cost pools, respectively.

For group two, which includes administrative labor, office

expenses, and all other expenses, a combination of the group one cost

allocations and the physician fee schedule work RVUs were used to

allocate the cost pools.

For procedures performed by more than one specialty, the

final procedure code allocation was a weighted average of allocations

for the specialties that perform the procedure, with the weights being

the frequency with which each specialty performs the procedure on

Medicare patients.

Other Methodological Issues

Professional and Technical Component Services

Using the methodology described above, the professional and

technical components of the resource-based practice expense RVUs do not

necessarily sum to the global resource-based practice expense RVUs

since specialties with different practice expenses per hour provide the

components of these services in different proportions. We made two

adjustments to the methodology, depending on the specific HCFA Common

Procedure Coding System (HCPCS) code, so that the professional and

technical component practice expense RVUs for a service sum to the

global practice expense RVUs.

Practice Expenses per Hour Adjustments and Specialty Crosswalks

Since many specialties identified in our claims data did not

correspond exactly to the specialties included in the practice expenses

tables from the SMS survey data, it was necessary to crosswalk these

specialties to the most appropriate SMS specialty category. (See Table

3 in the June 5, 1998 proposed rule (63 FR 30833) for a listing of all

proposed crosswalks.)

We also made the following adjustments to the practice expense per

hour data:

We set the medical materials and supplies practice

expenses per hour for the specialties of ``Oncology'' and ``Allergy and

Immunology'' equal to the medical materials and supplies practice

expenses per hour for ``All Physicians,'' stating that we make separate

payment for the drugs furnished by these specialties.

We based the administrative payroll, office, and other

practice expenses per hour for the specialties of ``Physical Therapy''

and ``Occupational Therapy'' on data used to develop the salary

equivalency guidelines for these specialties. We set the remaining

practice expense per hour categories equal to the ``All Physicians''

practice expenses per hour from the SMS survey data.

Due to uncertainty concerning the appropriate crosswalk

and time data for the nonphysician specialty ``Audiologist,'' we

derived the resource-based practice expense RVUs for codes performed by

audiologists from the practice expenses per hour of the other

specialties that perform these codes.

Because we believed that the use of the average practice

expenses per hour should create the appropriate practice expense pool

for radiology, we did not attempt to differentiate the practice

expenses per hour for radiologists according to who owned the

equipment.

Time Associated With the Work Relative Value Units

The time data resulting from the refinement of the work RVUs have

been, on the average, 25 percent greater than the time data obtained by

the Harvard study for the same services. We increased the Harvard time

data in order to ensure consistency between these data sources.

For services such as radiology, dialysis, and physical therapy, and

for many procedures performed by independent physiological laboratories

and the nonphysician specialties of clinical psychologist and

psychologist (independent billing), we calculated estimated total

physician times for these services based on work RVUs, maximum clinical

staff time for each service as shown in the CPEP data, or the judgment

of our clinical staff.

We calculated the time for Current Procedural Terminology (CPT)

codes 00100 through 01996 using the base and time units from the

anesthesia fee schedule and the Medicare allowed claims data.

We received the following comments on our proposed methodology to

calculate resource-based practice expense RVUs:

Top-Down Methodology

Comment: Most of the physician specialty societies commenting on

our proposed general methodology supported the use of the top-down

approach as the most reasonable methodology for developing resource-

based practice expense RVUs, and the most responsive approach to the

requirements of BBA. This was echoed by comments from several

nonphysician organizations, the Association of American Medical

Colleges, and the Medical Group Management

[[Page 58818]]

Association, as well as several hundred individual commenters.

These commenters supported the top-down method for a variety of

reasons:

It reflects the relative values of physicians' actual

practice expenses.

It uses the best available sources of aggregate practice

expense data.

It recognizes specialty-specific indirect costs.

It does not rely upon arbitrary, distorting data

adjustments such as ``linking'' and ``scaling.''

It is conducive to refinement.

MedPAC also agreed that this approach is necessary, because of

limitations in the CPEP process and because the top-down approach

assures that all practice costs are reflected in the RVUs.

However, several organizations, mainly representing primary care

physicians and supported by comments from individual physicians,

opposed the use of a top-down methodology to develop practice expense

RVUs. They argued that the top-down approach is not resource-based but,

rather, rewards higher paid physicians who have spent more in the past,

regardless of the extent to which these expenditures contributed to

patient care. Thus, the commenters claimed that the top-down approach

perpetuates the inequities in the current charge-based practice expense

RVUs that the implementation of a resource-based practice expense

system was supposed to correct.

One commenter also claimed that the top-down approach is not

responsive to the requirements of BBA, as the methodology is not based

on generally accepted accounting principles. Further, the commenter

argued that this new proposal is not more responsive to the concerns of

the medical community in general but, rather, only benefits those

specialties whose income was projected to decline under the bottom-up

approach.

A specialty society representing clinical oncology opposed the top-

down methodology because--

It does not actually measure appropriate input resource

costs and thus pays for inefficiencies;

It overpays hospital-based and underpays office-based

services; and

The RVUs for individual codes cannot be refined because of

the use of macro-specialty per hour costs.

There were several comments that expressed concern about the more

specific impacts of the methodology. A major primary care organization

pointed out that, under the 1997 proposed rule, an internist would have

had to provide only 15 midlevel established patient office visits to

obtain the practice expense reimbursement of a single coronary triple-

bypass graft, compared to 40 visits under our current proposal. One

organization opposed the use of the top-down approach because of the

estimated reduction in payments to radiology and radiation oncology.

Another commenter, representing pathologists, expressed concern that

because pathology received small gains under the bottom-up method, but

a 10 percent reduction under the top-down, there are possible flaws in

the top-down methodology.

A few of the above comments specifically recommended that we adopt

a new bottom-up approach that is responsive to the BBA, the General

Accounting Office (GAO), and the concerns of the medical community.

Another organization commented that both top-down and bottom-up

methodologies are inherently flawed, and that we should consider an

entirely new payment algorithm using type of practice. One of the major

primary care organizations concluded that the top-down methodology is

only a reasonable starting point that will need to be improved during

refinement in order to meet the original intent of improving practice-

expense payments for undervalued primary care and other office-based

services.

Response: As we stated in our proposed rule, BBA requires us to

``utilize, to the maximum extent practicable, generally accepted cost

accounting principles which recognize all staff, equipment, supplies,

and expenses, not just those which can be tied to specific

procedures****'' We still believe that the top-down methodology is more

responsive to this BBA requirement. By using aggregate specialty

practice costs as the basis for establishing the practice expense

pools, the top-down method recognizes all of a specialty's costs, not

just those linked to specific procedures.

We also believe that the other reasons outlined in the proposed

rule for preferring the top-down method are still valid. It answers

many of the criticisms and questions from the medical community and the

GAO regarding the bottom-up method's indirect practice expense

allocation method, treatment of administrative costs, and use of caps

and linking.

However, we agree that a possible weakness of the top-down approach

is that it may perpetuate historical inequities in the current charge-

based practice expense RVUs. More highly paid physicians would

presumably have more revenues that could subsequently be spent on their

practices. We believe this issue should be discussed during the

refinement process.

Comment: One major organization commented that we will need to

develop an alternative method for new and revised codes that are not

included in the SMS data because having multiple methods would lead to

questionable validity.

Response: It will not be necessary to develop an alternate

methodology for refinement of new and revised codes. Once direct inputs

are assigned to the new and revised codes, allocation to these codes

will follow the same methodology used for all other services. (See

Section II.A.4, Refinement of Practice Expense RVUs.)

Comment: Two major primary care organizations expressed concern

that we did not consult with the physician community about our

intention to abandon, rather than refine, our originally proposed

bottom-up approach, since they had assumed we would only be modifying

our original methodology. They commented that this is of greater

concern in light of BBA's requirement that we consult with physicians

regarding our methodology and of GAO's recommendation that we refine,

with no mention of replacing, the bottom-up method. One of the comments

stated, that as the GAO found the bottom-up method acceptable, their

society would like the GAO's assurance that the new method is sound.

Response: We believe we carried out the BBA requirement to consult

with physician organizations. There were extensive consultations with

physicians, including the validation panels, the cross specialty panel,

and the indirect cost symposium. During the course of each of these

meetings, physicians and others pointed out serious problems with the

bottom-up methodology. We have had two multispecialty meetings this

year to explain our proposed methodology and have also had numerous

meetings and discussions with many specialty societies. During all

these meetings we carefully listened to all points of view and to

suggestions for developing the new proposal. Following this lengthy

consultation process, we published our new proposal with a 90-day

comment period. This provided further opportunities for all interested

groups to review and comment on this proposal.

It is true that the GAO did not recommend that we totally replace

our bottom-up approach. It is our understanding that the GAO was not

asked to review alternative methods. In any case, their report did not

recommend against adopting a new methodology. Their report did point

out

[[Page 58819]]

several significant weaknesses in our original approach that we

believed were better responded to by adopting a top-down methodology.

Comment: One organization urged that we publish the practice-

expense RVUs three ways, using a top-down, a bottom-up, and a hybrid

approach that uses SMS data for indirect costs and CPEP data for direct

costs. The bottom-up and hybrid approaches should reflect the

recommendations previously received relating to scaling, linking, and

the treatment of administrative costs. This could provide a basis for

developing comments that compare the interim practice expense RVUs with

those derived from a modified bottom-up approach. The commenter stated

that we should be open to considering arguments for a change in the

interim practice expense RVUs based on a group's determination that the

values under the bottom-up approach were more accurate.

Response: We believe that we proposed the methodology for

developing resource-based practice expense RVUs that best responds to

the requirements of the Social Security Act Amendments of 1994 and BBA.

From a practical standpoint, it would be very difficult to deal with

the inconsistencies between RVUs for various services that have been

derived from totally different methodologies.

SMS Data

Comment: Almost all specialty society commenters, and many

individual commenters, raised questions concerning shortcomings in the

SMS data, though several commented that SMS is the most appropriate

data source to use in developing specialty-specific practice expense

RVUs. As we noted in the proposed rule, the AMA itself pointed out that

the survey had not been designed to support the development of practice

expense RVUs. The AMA also stated that the sample size, the response

rate, and the fact that data was collected on the physician level,

rather than the practice level, raised methodological issues. Many

commenters echoed these concerns, and many raised what they saw as

further general methodological problems:

MedPAC expressed concern about three types of potential

errors in the SMS data: the sampling error and nonresponse error

originally identified in our proposed rule and measurement error. Some

of this measurement error could occur because the survey measures

physician-level rather than practice-level costs, as noted above. In

addition, there could be measurement error by using a self-reported

survey if no mechanism exists to verify the information provided.

MedPAC suggested that we could reduce these errors through

additional data collection, perhaps implementing a subsample of SMS

survey participants, through an analysis of nonresponse error that

compares respondents with nonrespondents, through AMA's plans to do a

practice-level survey every other year, and through considering

methods, other than actual audits, to verify survey responses.

Several of the smaller specialties, such as maxillofacial,

pediatric, vascular and thoracic surgeons, cardiology and gynecology

subspecialties, geriatricians, and pulmonologists expressed concern

with the validity and reliability of SMS data for those specialty and

subspecialty groups not adequately represented in the SMS survey. A

commenter also stated that academic and hospital-based specialties,

such as critical care and neonatology, were not appropriately

represented. Many specialty societies requested that we consider

practice expense data obtained by under-represented specialty and

subspecialty groups.

Several nonphysician specialties, though supporting the

use of SMS data, raised the need to modify the survey to include

nonphysicians in the future. A commenter stated that, because

nonphysicians were not represented in the SMS survey, we have been

forced to make an educated guess about which specialties they most

resemble. Another commenter pointed out that the SMS data contains no

information about osteopathic physicians.

Several specialties, regardless of their overall sample

size, expressed concerns about the combining together of subspecialties

with differing practice costs. For example, organizations representing

cardiologists commented that it is not known how many in their sample

were providing evaluation and management services, as opposed to

performing equipment intensive procedures that have much higher costs.

Two specialty societies representing nuclear physicians, along with

several hundred individual commenters, objected to the small sample of

this subspecialty, with its high costs related to the use of

radiopharmaceuticals, being combined with radiologists into a single

practice expense pool. The comments recommended that we increase

nuclear medicine's practice expense RVUs by 20 percent.

Similarly, a vascular surgery organization objected to being

combined with cardiothoracic surgeons, who made up 75 percent of the

sample and whose practice style differs substantially from vascular

surgeons. An organization representing pediatrics expressed concern

that pediatric subspecialties were grouped together with their adult

counterparts, such as gastroenterology. The AMA commented on this point

that it plans refinements for future surveys to enhance the utility of

the data.

Several commenters noted that the survey consisted of

physician-owned practices, despite the trend toward more physicians

working as employees, resulting in a possible bias toward solo or small

group practices. For example, one commenter stated that the majority of

emergency room physicians now work as employees or under contract.

Another commenter asserted that the majority of pediatricians list

their status as ``employed.'' The AMA commented, in this regard, that a

key refinement to the SMS survey will be the development of a practice-

level survey to complement the current process.

One commenter questioned our assumption that physician

respondents to SMS share practice expenses equally with all other

physician owners in the practice, since there is no data to show that

this is the prevalent method.

An organization representing nurses commented that issues

related to changes in acuity and case mix in ambulatory care are not

being addressed, particularly as they pertain to the increased

professionalization of clinical staff types. The organization argued

that there is a need to incorporate into the survey process a clearer

distinction between the types of clinical staff that are employed based

on specialty practice.

Concerns were raised by some commenters that the SMS data

did not always include the actual costs of a given specialty. Several

organizations representing radiologists, radiation oncologists, and

cardiologists commented that the methodology employed by the SMS survey

consistently underestimated the actual costs of equipment.

Organizations representing emergency room physicians, supported by the

comment from the AMA, argued that the significant costs of both stand-

by time and uncompensated care are not reflected in the SMS data and

that these costs need to be recognized.

A gastroenterology specialty society asserted that the SMS data

grossly understated actual expenses when compared to its own study. Two

commenters stated that costs for home visits, such as travel expenses

and insurance, are not adequately represented in the data. One

organization commented that the SMS

[[Page 58820]]

data fails to adequately incorporate resources, including billing,

nursing time, and transportation costs for audiologists utilized in

settings such as skilled nursing facilities.

One commenter stated that the added costs for compliance with

federal initiatives, such as anti-fraud and abuse efforts and the new

evaluation and management documentation guidelines, are not yet

reflected in the SMS data. These costs should be recognized during the

refinement process and included in future surveys.

On the other hand, several commenters argued that costs

were included in the SMS data that should be excluded because they are

paid for separately from the physician fee schedule. One commenter

pointed to separately reimbursable supplies and drugs, and another to

the costs of taking physician staff into the hospital, as examples of

costs included in SMS that could lead to a double payment by Medicare.

A society representing vascular surgeons commented that the technical

component of noninvasive vascular laboratory testing falls into this

``gray zone.''

A national specialty society commented that the AMA

analysis of the ``zero'' responses by specialty by cost categories

(that is, those cost categories where respondents indicated there were

no costs) shows that a significant percentage of pathologists'

responses for direct cost categories are zero as compared to the

``zero'' response rates for all physicians. The comment requested that

the SMS pathology data be cleared of all ``zero'' responses for all

cost categories, not just for the total cost category, prior to the

calculation of mean costs. For the purpose of calculating practice

expense per hour for pathology, the society said, we should only use

data from pathologists who incur a particular cost.

There were a number of comments concerning the SMS data on

the specialty-specific physician patient care hours, which is one of

the variables used to compute the practice expense per hour for each

specialty:

Many specialty societies stated their concern that in the

calculation of the specialty-specific practice expense per hour,

specialties working the longest hours are disadvantaged. One commenter

pointed out that practice expense is not uniformly distributed over the

course of a given day; there are less costs when patient care takes

place after, rather than during, office hours.

Another commenter argued that our approach assumes that all of the

patient care hours in the SMS survey are reflected in our claims data.

However, the commenter stated, much time spent in patient care

activities is not billable, such as the involvement of transplant

surgeons in patient care after the initial assessments but prior to the

actual transplants.

One specialty society stated that hospital-based physicians' hours

of work are probably overstated, as they will include total time spent

in the facility and not just hours of providing patient services. One

commenter questioned both the accuracy of the SMS data on hours worked

per week, as well as our assumption that the level of practice expense

incurred increases proportionally with the hours spent in patient care.

An organization stated that physician reports of number of hours are

less reliable than the reports of costs and are prone to overstatement.

For these reasons, five specialty societies recommended using a

standardized work week, usually a 40-hour week, for all specialties.

Many other specialty groups argued equally vehemently

against any standardization of the patient care hours. One group

commented that subjective adjustments to the SMS data, especially those

which reallocate practice expenses among specialties, should be

avoided. The comment added that suggestions that a standardized 40-hour

work week be imposed on the data should be rejected because the

proposal is driven by an arbitrary, subjective presumption that cross-

specialty practice expense variations are ``too large.''

Another group argued that, as many physicians work more than a 40-

hour week, such an adjustment would introduce additional error into the

data and distort the relationship between different specialties'

practice expenses per hour.

Three organizations were concerned about the advantage

given to specialties that use nonphysician practitioners who are not

reimbursable. In such cases, the physician would incur practice expense

costs, but the time of practitioners would not be included in the

physician patient care hours in the denominator of the practice expense

per hour calculation.

On the other hand, another commenter stated that we should not

adjust the SMS data for midlevel practitioners, such as optometrists or

audiologists, as physician practices employing midlevel practitioners

are likely to be more complex than a physician-only operation.

One specialty society commented that the demographics of

the SMS survey are not clear, as there are no assurances that the

sample is not biased towards one particular area of the country and

does not exclude some areas.

Response: We believe that most of the above comments identified

important areas for needed future improvement in our data collection

efforts on aggregate specialty-specific practice expense. However,

although the SMS survey was not initially intended to be used to

develop practice expense RVUs, we believe it is the best available

source of data on actual multispecialty practice costs that allows us

to recognize all staff, equipment, supplies, and expenses, not just

those that can be tied to specific procedures. Many specialties

supported this.

For example, a specialty society commented, ``As with any complex

database, the AMA SMS database is not perfect. It is, however, the best

available source of data for aggregate practice expenses.'' The Medical

Group Management Association (MGMA) stated in its comment that, ``The

SMS survey data is the most appropriate and only primary data set in

existence to determine specialty specific costs pools.''

We also need to point out that many of the weaknesses in the SMS

data could well be found in any other survey, whether undertaken by us,

some other national group, or a medical specialty society. Problems

with sample size and response rate have plagued other previous attempts

to gather reliable data on practice expenses. Problems with measurement

error may be a serious impediment for survey data that is collected

with the purpose of influencing the level of a given specialty's

practice expense pool. In fact, we believe one advantage of the current

SMS data is that they were collected before the 1997 and 1998 proposed

rules were published.

We recognize that some specialties are under-represented or not

appropriately represented in the SMS data and some are not included at

all. We also acknowledge that additional data may need to be obtained

and some adjustments made. One of our most important tasks during the

immediate refinement period will be to work with the AMA and the

medical community to consider possible ways to improve the

representativeness of the aggregate specialty-specific data so that

sampling error is decreased. As part of the refinement, we will also

need to develop strategies to eliminate as many sources of nonresponse

and measurement error as possible. (For further information on our

refinement efforts to improve the accuracy of our

[[Page 58821]]

data, see Section II.A.4, Refinement of Practice Expense RVUs.)

As indicated earlier, we believe an advantage of the SMS data we

used is that it was collected prior to the proposed rule. In fact, it

was collected prior to the original proposal in 1997 that was delayed

by BBA and that would have resulted in large redistributions among

specialties.

We are very concerned, though, about the potential biases that may

exist in any subsequent survey data collected by the SMS process or

other surveys. We especially believe there is a problem in using data

collected and submitted to us by individual specialties. We believe it

is more appropriate to use data collected at the same time by an

independent surveyor for a wide variety of specialties that both gain

and lose under the proposal.

Further, now that it is widely known how these survey data are

being used, every specialty has an incentive to ensure that their data

are as high as possible in future surveys. We agree with MedPAC that it

may not be possible for Medicare to audit these data and that it is

essential that alternatives be established by SMS and others. Perhaps

specialty data that significantly changes in a future survey should be

selectively audited by SMS through an independent auditor or other

appropriate entity before being considered for use by us. We will

consult with physician groups and others about this during the

refinement process.

Comment: One national organization suggested the use of MGMA survey

data either as a supplement or alternative to SMS in the future.

Response: We do not believe that the MGMA survey could currently be

used as an alternative to SMS. As we noted in our proposed rule, due to

selective sampling and low response rate, this survey is not

representative of the population of physicians and cannot be used to

derive code-specific RVUs. This view is based on consultations with

MGMA representatives. However, we do believe that this survey data can

be used as one way to validate the general accuracy of the SMS data. We

have analyzed the MGMA data and have concluded that, in general, it

supports the relative specialty-specific ranking of the practice

expense per hour data derived from the SMS survey.

Comment: One specialty society recommended using median, instead of

mean, values to calculate each specialty's practice expense per hour.

This comment argued that the use of medians would eliminate outliers

and is statistically more appropriate.

However, three other organizations specifically commented

supporting our decision to use mean SMS data rather than median data.

These comments asserted that, particularly with a small sample, use of

the median would obscure any major differences in practice costs within

a specialty.

Response: We will continue to calculate the practice expenses per

hour by using the mean values for each specialty, at least for the

purposes of this final rule. This is another issue that can be

revisited during the refinement period.

Comment: Organizations representing emergency room physicians, as

well as several hundred individual commenters, claimed that the SMS

data seriously under-represented the true practice costs of emergency

care. The commenters stated that the SMS data, as noted above, did not

include costs of uncompensated care, much of it mandated under the

Federal Emergency Medical Treatment and Active Labor Act (Public Law

99-272), nor stand-by expenses.

In addition, the comments argued, the SMS data failed to capture a

representative cross-section of their types of practice arrangements;

the SMS survey focused on physician owners, but the majority of

emergency room physicians work as employees or under contract.

Therefore, one commenter asserted, SMS did not include the largest

single expense for most emergency physicians: the costs associated with

employment by practice management firms, which can total between 30-40

percent of the physician's fee.

One of the specialty societies included with its comments the

results of a study it commissioned, which showed that the mean practice

expense per hour for emergency physicians was $27.33, more than double

the $13 per hour based on SMS, even without including uncompensated

care. If we are not willing at this time to substitute this survey data

for that from the SMS, the organization recommended, with support from

a comment from the AMA, that we crosswalk emergency medicine to the

practice expense per hour for ``All Physicians,'' which is $67.50.

Response: Though many specialties must deal with the issue of

uncompensated care, we do agree that it may pose a particular problem

for emergency physicians, who are obligated under law to treat any

patient regardless of the patient's ability or willingness to pay for

treatment. Therefore, the amount of patient care hours spent on

uncompensated care could be significantly higher for emergency medicine

than for any other specialty. These issues require further examination.

In the meantime, we will make an adjustment in our calculation of the

practice expense per hour for emergency medicine by using the ``All

Physicians'' practice expense per hour to calculate the administrative

labor and other expenses cost pool. We will continue to calculate the

clinical labor, supply, equipment, and office cost pools using the SMS-

derived data, as it seems unlikely that, as a hospital-based specialty,

emergency medicine's costs for these categories would approximate those

of the average physician.

Comment: Many commenters argued that the reductions published in

the June 5, 1998, NPRM for services without work RVUs were

inappropriate. The commenters represented a wide spectrum of

specialties including radiology, radiation oncology, cardiology,

independent physiological and other laboratories, psychology,

audiology, dermatology, and others. These comments focused on the fact

that AMA does not survey some of the entities that provide these

services. They argued that the CPEP data are flawed and the indirect

allocation methodology is biased.

Response: Although it is true that the AMA does not survey the

entities that provide some of these services, this does not necessarily

mean that these services are inadequately represented in the SMS data.

If these services (or in the case of technical component services, the

associated global services) are provided in the practices of physician

owners surveyed by the SMS in the same proportion as they are reflected

in our claims data, the practice expense per hour calculations and the

practice expense pools are reasonable.

If the CPEP data accurately contain the direct cost inputs for

these services, then the direct practice expense pool is being

allocated appropriately. With regard to the indirect allocation

methodology, we are modifying it to increase the weight of the direct

costs in the allocation, as discussed elsewhere.

However, the possibility exists that inaccuracies in the CPEP data

for these services are causing the substantial reductions seen in the

NPRM. Therefore, because we are not altering the CPEP at this time, as

an interim solution until the CPEP data for these services have been

validated, we have created a practice expense pool for all services

without work RVUs regardless of the specialty that provides them. We

allocated this practice expense pool to procedure codes using the

current practice expense relative value units.

[[Page 58822]]

While we are not convinced by the comments that were received to

date regarding a bias in the SMS survey data against these services, we

acknowledge those concerns and will examine this issue during the

refinement process.

Comment: The College of American Pathologists (CAP) requested that

patient care time included in the SMS data that is spent in autopsies

and supervision of technicians and paraprofessionals be excluded from

the patient care hours used to calculate the practice expense per hour

for pathology services. The commenter stated that these are Part A

services for which pathologists rarely incur any direct costs. The AMA

supported these adjustments and estimated the percentage of total

pathology patient care hours attributable to autopsy and supervision

services at 6 and 15 percent, respectively.

CAP also asked that some portion of the patient care hours category

of ``personally performing nonsurgical laboratory procedures including

reports'' be eliminated for 1999 when determining pathologists' total

patient care hours, as the SMS data includes both Part A and Part B

services. CAP stated that we should work with the CAP and the AMA to

determine the appropriate adjustment.

Response: Since pathologists have more Part A reimbursement than

any other specialty, we will decrease the number of patient care hours

by 6 percent for autopsies and 15 percent for supervision services.

However, until we have more information about the appropriate

adjustment for ``personally performing non-surgical laboratory

procedures including reports,'' the hours for those services cannot be

eliminated from our calculations. This point, as well as the general

issue of nonbillable hours, should be revisited during refinement.

Comment: Many specialty societies have commented on specific

problems with the SMS data that affect their own specialty and have

requested that we supplement or replace the SMS data with data provided

with their comments.

Response: There is not sufficient time before publication of the

final rule to begin to validate either the methodology or findings of

the submitted data. Since changes in any specialty's practice expense

per hour would have an impact on other specialties, we do not believe

it would be equitable to make any sweeping changes without the adequate

review that the refinement process can achieve. In addition, we stated

in our proposed rule that, for those larger specialties included in the

SMS survey, ``we are unlikely to make any changes in the final

rule****'' Therefore, we will continue to use the SMS-derived practice

expense per hour for these specialties, but will ensure that all of the

submitted data will be considered during the refinement process.

CPEP Data

Comment: Though one major specialty society commented that the CPEP

data, in general, is relatively sound, many comments pointed out

problems with the CPEP process and with the data derived from that

process:

One group commented that the CPEPs did not have adequate

representation from practice managers; that there was no uniform policy

dealing with issues such as duplication of time or efficiencies that

might result from performing more than one task at a time; and that

there was inadequate time allotted for CPEPs to meet.

Several subspecialties pointed out that they were not

included in the CPEP process and that this could have led to the

undervaluing of their services.

Several commenters recommended that we use the CPEP data

as validated and refined by the validation panels.

One organization commented that the CPEP data are flawed

since only 200 codes were reviewed by validation panels.

One primary care group argued that we should not abandon

edits and modifications to raw CPEP data, as many codes are performed

by more than one specialty, and inaccuracies in the CPEP data can

affect several specialties.

Two organizations commented that the CPEPs used what is

now obsolete salary and benefits data, at least for sonographers and

vascular technologists. One of these comments pointed out that for some

codes, a different cost was computed for the same equipment. Another

specialty society recommended that a review of prices and quantities

for supplies and equipment be included as part of the refinement

process.

Two commenters were concerned that the CPEP data include

expenses that can be billed separately. A primary care specialty

society argued that we should edit out all direct inputs for services

to hospital patients. The comment mentioned that since these services

are paid for outside of the practice expense RVUs, failure to exclude

these inputs can distort relativity across categories of services such

as surgical services and office visits.

One commenter clarified that the costs of therapy aides

are a part of practice expense and should be reflected in the CPEP

data, while the services of therapy assistants are included in the work

RVUs.

Response: We are aware that the raw CPEP data we have used in our

proposed methodology need further review. We also share many of the

concerns raised by those commenting on the issue. However, we believe

that the CPEP resource estimates, which were developed by practitioners

representing all the major specialties, are the best procedure level

data available at this time.

Under our top-down methodology, the CPEP inputs are used solely to

allocate each specialty's practice expense pool to the procedures

performed by that specialty. We have always believed that the relative

input estimates within families of codes for each specialty's CPEP data

were generally appropriate. In addition, the most contentious CPEP

values were the varying estimates for the administrative staff times,

and these values are not utilized in our top-down approach.

We chose not to apply the edits, caps, or linking that had

originally been proposed in our 1997 proposed rule as part of our

bottom-up methodology. These edits had met with severe criticism from

the medical community and were questioned by the GAO. We also did not

use the revised inputs from the validation panels we held in October

1997, as these panels only came to consensus on about 200 codes, and we

were not convinced that all of the revised values were correct.

However, we know that there is much needed improvement in the CPEP

data, and the identification and correction of any CPEP errors whether

in staff times, supplies, equipment, or pricing will be a major focus

of our refinement process.

Comment: One specialty society commented that we erred in not

incorporating increases in staff time recommended by validation panels.

Partly as a result, the practice expense RVUs for gastroenterologists'

out-of-office billing, scheduling, and record keeping are inadequate.

Another commenter stated that there were discrepancies in the

administrative data for skilled nursing facility services, with

subsequent visit codes being assigned only half of the billing time of

initial visits. A third commenter requested that we standardize the

administrative staff types according to the validation panels'

recommendations. Three commenters stated that we do not account for the

costs of maintaining an office full-time when the physician is

providing services out of the office.

[[Page 58823]]

Response: As stated above, under our proposed methodology, CPEP

administrative staff times have no effect on the practice expense RVUs

calculated for any code. The costs of maintaining an office while the

physician is providing services in a facility should be captured in the

SMS cost data and, thus, are a part of each specialty's practice

expense pool. As these would be indirect costs, they would be included

in the practice expense for each service by use of our allocation

methodology, which utilizes both directs costs and the physician work

RVUs.

Comment: Almost 30 specialty societies submitted specific CPT code-

level changes for the CPEP input data for clinical and administrative

labor time, supplies, and equipment for just under 3000 CPT codes. In

addition, many commenters included lists of codes with practice expense

RVUs that were considered anomalous, either within a code family, or in

relation to comparable codes. We also received comments from several

organizations with recommendations for revised crosswalks for those

codes not valued by the CPEPs, as well as recommended in-office inputs

for some codes that are now being done in the office, but were only

given practice expense RVUs for the facility setting.

Response: We had intended to make the CPEP revisions requested by a

given specialty as part of the final rule if the recommendations

appeared reasonable and if there would be no significant impact on any

other specialty. However, given the huge volume of recommended

revisions--over a third of the codes in the fee schedule would be

affected--acceptance of the recommended changes across the board would

almost certainly have a spill-over impact on many subspecialties and

between sites-of-service.

We believe it would be more responsible and fair to allow the

medical specialties to participate collectively in the needed revisions

as part of the refinement process. The deferral of the CPEP revisions

is in no way a reflection on the effort and thought that the commenters

obviously expended in arriving at their recommendations. All the code-

specific comments referred to above will be considered at the start of

the refinement period. (See Section II.A.4, Refinement of Practice

Expense RVUs)

Comment: Many organizations, representing both surgical and primary

care specialties, expressed concern that we averaged CPEP data for the

same procedures valued by more than one CPEP. Different rationales were

offered for this concern:

Averaging could have disturbed the relative rankings of

codes within CPEPs.

Straight averaging significantly overstated the costs of

evaluation and management services.

Averaging CPEP costs altered practice expense

relationships within the evaluation and management family of services,

particularly with respect to emergency department evaluation and

management codes.

The inclusion of estimates from those not performing the

procedures, including nonphysicians, could have distorted the values

for those services.

Likewise, different solutions were offered to answer the concerns:

One specialty society recommended that we link the CPEP

data rather than relying on straight averages.

Two organizations recommended using frequency-weighted

averages.

Five groups recommended that the CPEP costs for redundant

codes be based on the inputs from the dominant specialty's CPEP panel.

Response: As we are making no other changes in the CPEP data for

this final rule, we will continue to use straight averaging for the

redundant CPEP codes for the purposes of this final rule. This issue

will be considered further during refinement.

Comment: Two commenters requested the inclusion in practice expense

of the procedure-related supplies which are brought into a skilled

nursing facility (SNF). One of these commenters made the same request

for home visits.

Response: Home visits are to be paid using the non-facility RVUs.

Therefore, any supplies that would be used are already included in the

payment. As for the SNF setting, this is an issue for refinement. We

would need more information about the supplies and why the SNF is not

responsible for providing them.

Comment: The American College of Surgeons sent a list of new

crosswalked codes where CPEP data had inadvertently been duplicated in

our database.

Response: We thank the commenter for pointing out this discrepancy,

and these duplications have been deleted.

Physician Time

Comment: One major specialty society recommended that efforts be

undertaken to move toward greater consistency in physician time data.

The commenter was concerned that since these data are derived from

eight different sources using different methodologies, our inflation of

the Harvard time data raises even more concern about consistency.

Three major organizations, two representing primary care and the

other a surgical specialty, recommended that we use the unadjusted

Harvard and RUC survey data. One reason given was the implication for

the work RVUs of any proposed revisions to the time data. The RUC

commented that, while the RUC physician time data may be greater than

Harvard time data for the same codes, it may be incorrect to assume

that all Harvard time data should be increased. The RUC and several

other organizations requested that we provide a description of the

methodology we used to make adjustments to the data in both the RUC and

Harvard physician time databases so they can comment on the validity of

the changes.

Response: The physician time data used for the development of the

practice expense pools are based on the Harvard resource-based RVUs

study and RUC survey data that were developed as part of the refinement

of the work RVUs. Both sets of data were based on physician surveys.

However, the RUC data, gathered in the process of refining the work

values of many CPT codes, are more current and, on average, exceeded

the original Harvard values by 25 percent. As a matter of consistency

and fairness to those services not yet refined by the RUC, we increased

the Harvard time data in proportion to the increases for related

services. A detailed description of the methodology we employed to make

all adjustments in physician time will be placed on the HCFA Homepage.

We still believe this adjustment is appropriate and we will

continue to use the adjusted values in our calculations for this final

rule. However, as the time values attributed to each procedure play an

important role in the determination of each specialty's practice

expense pool, we believe that ensuring the increased accuracy and

consistency of physician time data should be addressed as part of the

refinement of the practice expense RVUs.

Comment: Three surgical specialty societies commented that

evaluation and management times have been artificially inflated due to

rounding. A small increase in time would disproportionately inflate

high volume procedures that take little time.

Response: In our proposed rule, we expressed concern that

imprecision in the time estimates for any high volume services that

have relatively little time associated with them may potentially bias

the practice expense methodology in favor of the specialties that

perform these services. We stated at that time that this issue should

be examined as

[[Page 58824]]

part of the refinement of the resource-based practice expense RVUs.

Comment: There were several other comments regarding the accuracy

of the physician time data:

The RUC acknowledged that some of the RUC physician time

data may not be absolutely precise.

One specialty society, as well as the AMA, pointed out

that there are some problems with the accuracy of the physician time

data for psychotherapy services. For example, the times assigned to

psychotherapy codes that include evaluation and management services are

equal to and, in some cases, less than the psychotherapy codes that do

not include these services.

One commenter stated that the physician time data, as

computed in the Harvard studies, are not current and are likely to be

inappropriate for use in computing practice expense RVUs.

The American College of Surgeons commented that physician

time for pediatric surgery codes is based on erroneously low physician

time data from the original Harvard study, rather than the time data

from the special study of pediatric services performed by the same

Harvard study team for the American Pediatric Surgical Association in

1992. The latter data were used as the basis for the work RVUs assigned

to 48 pediatric surgical services.

A surgical specialty society commented that the physician

time does not compensate its members for longer hours and cited

examples of nonbillable time, such as standby time for cardiac

catheterization and supervision of residents and interns. The society

suggested that this be considered during refinement.

One commenter stated that travel time for home visits is

not included in either the work or practice expense RVUs. The commenter

suggested that travel time for house calls should be equal to the work

equivalent of the lowest office service times 3, for an average of 15

minutes. Further, a modifier should be used to cover instances where

travel exceeds the average.

The American Society of Transplant Surgeons identified

physician times for several services that it believes are inaccurate

and recommended adjusted times for these services.

Response: As stated above, we will ensure that all identified

anomalies and inaccuracies in the physician time data are considered as

part of the refinement process.

Comment: The American College of Radiology commented that for our

top-down approach we had used a level three office visit (99213) as a

benchmark for estimating physician time for radiology codes. They

suggested that it would be more appropriate to use the intravenous

pyelography procedure (CPT 74400) instead of the office visit used in

our methodology.

Response: Although we agree that 99213 may be an inappropriate

benchmark since it is not often performed by radiologists, we are not

convinced that the average work per unit time of codes on the radiology

fee schedule is equivalent to CPT 74400. Instead, we are using the

weighted average work per unit time for CPT 71010 and 71020 as the

benchmark. These two services represent over approximately one-third of

the total allowed services in the radiology fee schedule, while CPT

74400 represents less than two-tenths of one percent. We will work with

the medical community to develop time estimates for radiology

procedures that will make the imputation of time from the work

estimates unnecessary.

Comments: The American Occupational Therapy Association commented

that the practice expense pool for occupational therapy codes was

understated because the time values of 15 minutes that we arbitrarily

assigned were too low. They included a list of time values we should

use for each code.

The American Hospital Association also objected to the reductions

in times for outpatient rehabilitation codes and urged the use of the

actual surveyed times for all procedure codes in the range 97001

through 97770.

Response: We believe that the time of 15 minutes we assigned to

these codes is appropriate and does not lead to an underestimation of

the practice expense pool for outpatient rehabilitation services. The

outpatient rehabilitation codes in this range are timed codes and are

billed in 15 minute increments. Also, we have been told by some

physical therapy associations that at times, some of the 15 minute

period time may be performed by therapy aides or assistants. (Note: We

plan to review this issue during a future five-year review of work

RVUs.) Finally, it is common for these timed codes to be billed in

multiple units during one therapy session. Thus, any therapist's work

prior to or after the visit is spread across more than one unit, rather

than applied to each unit.

Crosswalk Issues

Comment: The American Academy of Maxillofacial Prosthetics (AAMP)

and the American College of Prosthodontists commented that crosswalking

is not valid for maxillofacial prosthetic codes since this specialty

does not correspond to any other medical specialty included in the SMS

data and its practice expense values are much higher than other medical

specialties in the SMS survey. AAMP submitted several studies from its

own organization and from the American Dental Association, as well as

two studies published in professional journals that report the results

of polls of prosthodontic practitioners, including information on

overhead expenses. The AAMP recommended that this data be used to

calculate its practice expense per hour.

Response: We agree that maxillofacial prosthetics does not

correspond closely with any other medical specialty. It also is not a

separately-identified specialty in either the SMS survey or the

Medicare claims database.

Though the AAMP submitted survey data compiled by both its own

organization and the American Dental Association, the format,

definitions, and methodology of these surveys were not consistent with

those of the SMS survey. For example, the 1993 AAMP survey did not

survey practice expense, but rather the ``percent overhead of gross

collections for 1992.'' The American Dental Association surveys counted

dentist shareholder and employee dentist income as practice expense in

many tabulations.

Because of these methodological differences from the SMS data, we

are not able at this time to use the information in the submitted

surveys to calculate a comparable practice expense per hour for

maxillofacial prosthetics.

For this final rule we will create a practice expense pool for the

maxillofacial prosthetic codes (CPT 21076 through 21087) and crosswalk

this pool to the practice expense per hour for ``All Physicians.'' We

had imputed physician times for these services in our proposed rule.

However, we are now using the physician times utilized in calculating

the work RVUs for the same services. In addition, until the CPEP data

for these codes can be validated, we will allocate the practice expense

pool to the specific services using the current RVUs. We hope to work

with the specialty society as part of the refinement process in order

to develop a reliable method of deriving accurate practice expense RVUs

for maxillofacial prosthetics.

Comment: The American Optometric Association (AOA) disagreed with

our crosswalk of optometry to the average practice expense per hour for

``All Physicians,'' that results in a practice expense per hour of

$67.50. The commenter stated that AOA understands that the crosswalk

decision

[[Page 58825]]

was based, at least in part, on the 1997 survey conducted by AOA which

had been provided to us. This survey has been conducted regularly since

1990 and was included with the comment, along with a study commissioned

by the AOA entitled ``Results of the First National Census of

Optometrists.'' Using data from this survey and study, AOA computed an

$89.53 practice expense per hour for optometry, significantly higher

than the average for ``All Physicians.''

Response: As in the above request, the data submitted by AOA are

not easily comparable to the SMS data. For example, the AOA calculation

used medians rather than means, and retirement and fringe benefits were

not counted as median net income, but rather as practice expense. It is

therefore not possible, without further information, consultation, and

analysis, for us to calculate a practice expense per hour that would be

comparable with that of other specialties. During the refinement period

we will be working with specialties not represented in the SMS survey

to identify the data needed to enable us to determine accurate practice

expense RVUs for their services.

Comment: Although generally supporting the crosswalk to General

Internal Medicine, the American Chiropractic Association (ACA)

submitted data from the 1997 survey results of ACA's biannual survey of

the chiropractic profession. This survey shows considerably lower

direct patient care hours than SMS shows for General Internists.

Therefore, the ACA requested that we use its data to calculate the

practice expense per hour for Doctors of Chiropractic, stating that we

should accept specialty societies' data over SMS data if they were

collected in a comparable manner.

Response: The survey submitted by the commenter indicated that the

patient care hours worked by chiropractors are significantly lower than

those of general internists to whom chiropractors' practice expense per

hour is crosswalked. However, the hours of direct patient care a week

shown in the survey were defined more narrowly than in the SMS data.

For example, the 29 hours of patient care a week calculated in the

submitted survey did not include the hours spent for documentation,

administration, and billing, activities that we have considered to be

included in the direct patient care hours for other specialties. In

addition, there are insufficient details in the survey for us to

determine its comparability to the SMS data and we will maintain the

crosswalk for chiropractors for this final rule. We do intend, however,

to revisit this issue during the refinement process.

Comment: The American Podiatric Medical Association, Inc. (APMA)

objected to its crosswalk to general surgery because it believes that

there is little similarity between the two specialties based on site-

of-service and types of services provided. General surgery services are

typically performed in the facility setting, while the high volume

podiatry services are almost entirely done in the office. In addition,

the comment stated that podiatrists work fewer hours than general

surgeons.

The comment also included the results from APMA's 1996 and 1998

surveys of podiatric practice, as well copies of the surveys

themselves. According to the comment, these surveys show that the

actual practice expense per hour for podiatry is $91.50 and APMA

recommends that we use this data in place of our proposed crosswalk.

The American Academy of Orthopaedic Surgeons also disagreed with

the crosswalk for podiatry, but recommended that podiatry be

crosswalked to orthopaedic surgery in the short run, as 70 percent of

the codes billed by podiatrists are those that are shared with

orthopaedic surgery.

Response: Because of significant methodological differences between

the submitted surveys and the SMS data (for example, only gross and net

incomes are surveyed) we are not able at this time to calculate a

practice expense per hour in total, let alone for each of the different

cost pools.

However, we are persuaded that the crosswalk to general surgery is

not appropriate for the reasons cited in the comment, and we are

changing the crosswalk to ``All Physicians.'' We will be working with

all specialties not represented in the SMS data to ensure that we

obtain comparable information to calculate their practice expenses per

hour.

Comment: The Joint Council of Allergy, Asthma, and Immunology

stated that, in calculating the allergists' practice expense per hour,

we reduced the supply category practice expense per hour to that of

``All Physicians,'' because we believed that we made a separate payment

for the drugs used. However, this is not true for immunotherapy drugs

provided by allergists, as the cost of these drugs is included in the

practice expense RVUs. Therefore an adjustment needs to be made.

Response: The commenter is correct and the adjustment has been made

to the medical supplies practice expense per hour.

Comment: The American Society of Clinical Oncology commented that

since the SMS supply cost data for chemotherapy codes included the

costs of expensive chemotherapy drugs, which are paid for separately,

we used the lower supply costs for ``All Physicians'' for their supply

cost pool. The commenter argued that this fails to recognize that, in

addition to the cost of the drugs, chemotherapy administration has

extra supply costs in excess of that for ``All Physicians.'' Also,

although chemotherapy drugs are generally among the costliest drugs,

the cost of drugs was probably included in other specialties' supply

costs as well, and all specialties should be treated in the same

manner.

The Association of Community Cancer Centers, the Society of

Gynecologic Oncologists, and the American Society of Hematology also

disagreed with our adjustment for drug costs, as did the AMA, which

called our method of correcting for the double counting of drugs

inequitable and imprecise. The American Society of Hematology

recommended increasing the supply per hour costs to 125 percent of the

``All Physicians'' level.

Response: It is true that other specialties may have some drug

costs included in their SMS supply cost data, but we believe that the

total costs for chemotherapy drugs are far greater than are the drug

costs included for any other specialty. Failure to make an adjustment

for these high drug costs would lead to a gross distortion in the

supply cost pool for oncology.

We also are not convinced that the other supply costs for

oncologists would necessarily exceed that of ``All Physicians,'' and we

will continue to crosswalk oncology's supply costs to that category's

practice expense per hour. We do agree that during refinement we need

to consider development of a methodology for removing separately

billable supplies and services from the SMS data so that the Medicare

program avoids making duplicate payments. We also will work with the

oncology specialty to ensure that their practice expense per hour for

the supply category adequately reflects the actual costs of other

oncology supplies.

Comment: The American Association of Oral and Maxillofacial

Surgeons objected to the crosswalk of oral surgery and maxillofacial

surgery to the practice expense per hour of ``All Physicians.'' They

recommended a crosswalk to either otolaryngology or plastic surgery, as

most of the medical procedures billed

[[Page 58826]]

by oral and maxillofacial surgeons can be crosswalked to these two

specialties. The commenter argued that because of their significantly

higher practice expenses, oral and maxillofacial surgery should not be

in the same practice expense pool as manipulative therapists and

optometrists, as this dilutes the practice expenses for these surgical

services. In addition, the 1996 Harvard Study grouped oral and

maxillofacial surgery under otolaryngology and plastic surgery.

Response: We do not currently have sufficient data to make such a

change in our crosswalk. This is an issue that can be addressed during

the refinement period.

Comment: The American College of Cardiology and the American

Society of Echocardiography disagreed with the crosswalk of Independent

Physiologic Laboratories (IPLs) to ``All Physicians.'' The comment

recommended that IPLs' practice expense per hour be crosswalked to

cardiologists, as 60 percent of IPL billings are in the 93000 series

and for the 13 highest volume IPL codes, cardiologists account for 40

percent of claims. The Society of Vascular Technology/Society of

Diagnostic Medical Sonographers also expressed concern that our

crosswalk of IPLs did not adequately recognize their costs and

recommended that we use the figure of $176 per hour based on the

studies cited in the comment.

Response: As discussed above, we will be creating a separate

practice expense pool for all services without physician work, which

will include those technical component services done by IPLs and by

cardiologists.

Comment: The Society of Gynecologic Oncologists requested that we

consider using multiple crosswalks to determine practice expense per

hour for specialties that provide interdisciplinary care. The comment

stated that the true reflection of practice expense per hour for a

gynecologic oncologist is a hybrid of the practice expense per hour for

the specialties of obstetrics and gynecology and oncology.

Response: It is not clear whether this is desirable or what data

would be used to weight such a split between more than one specialty.

Many physicians belong to more than one specialty or subspecialty. This

is another issue that can be discussed during the refinement period.

Comment: The American Geriatrics Society disagreed with our

crosswalk of geriatrics to the General Internal Medicine practice

expense per hour. The comment stated that geriatricians typically have

higher costs than internists because of the need for more office space

and more health care professionals on staff. Since many geriatricians

are family physicians, geriatrics should be cross-walked to family

practice.

Response: We believe that geriatricians are typically more like

internists than family practitioners, so for the final rule we will not

change the crosswalk. However, we are open to receiving data that would

demonstrate that a crosswalk to family practice would be more

appropriate.

However, we would note that geriatrics is a relatively small

specialty and the services performed by them are frequently done by

other specialties. Thus, changes in the practice expense per hour data

for geriatricians would not likely have a significant impact on the

RVUs for services they perform.

Comment: One commenter made recommendations for revisions or

additions to our proposed crosswalks for several nursing

subspecialties. Another specialty society commented that under the

physician fee schedule we have chosen to pay nonphysician practitioners

a percentage of the physician reimbursement, and crosswalking to

specialties with higher practice expense per hour rates than general

internal medicine or general surgery is not logical or reasonable.

Another organization also recommended that data from nurse

practitioners and physician assistants be excluded from the practice

expense pool calculations.

Response: We will further consider appropriate crosswalks for

nursing subspecialties during the refinement period.

Comment: The American Hospital Association and the American

Occupational Therapy Association recommended that we crosswalk all of

the practice expense pools for outpatient rehabilitation services to

the ``All Physicians'' practice expense category, rather than using the

salary equivalency guidelines for the administrative, office, and other

pool.

Response: We believe that using the ``All Physicians'' practice

expense per hour for the administrative, office, and other pool would

considerably overstate the actual practice expense for occupational

therapy. We have carefully examined outpatient therapy practice costs

for the development of the salary equivalency guidelines, and believe

that these better approximate the actual expenses for this cost pool.

We will continue to use the salary equivalency guidelines to calculate

this portion of the practice expense pool for occupational therapy for

this final rule.

Comment: The American Speech-Language Hearing Association commented

that it is not appropriate to use the practice expense per hour data

from physicians that perform audiology tests and it submitted a 1993

survey, ``Audiology Services--Scale of Relative Work,'' as part of its

comments.

Response: As we stated above, we are creating a single practice

expense pool for all services, such as audiology, that have no work

RVUs. This practice expense pool, created by using the average clinical

staff time per procedure from the CPEP data and the ``All Physicians''

practice expense per hour, raises practice expense RVUs for audiology

services relative to those previously proposed. However, during the

refinement process we will be considering all data submitted on any of

these services, including the study submitted with the above comment.

Calculation of Practice Expense Pools--Other Issues

Comment: Several organizations commented on potential problems with

the Medicare claims data, which are used as one component of the

specialty-specific practice expense pool calculation.

Many commenters were concerned about reliance on Medicare

claims data to determine the size of each specialty's practice expense

pool. The comments claimed that to the extent that the Medicare

population is not representative of the general population, there is a

bias against specialties whose patient population does not match

Medicare's. Several organizations, representing the gamut of medical

specialties, urged us to work during the refinement period with

organizations for whom we have no, or inadequate, historical claims

utilization information and to acquire nationally representative claims

data that include Medicare, Medicaid, and private payer data.

One of these commenters recommended that, if this is not feasible,

we should conduct sensitivity analyses to explore the influence

Medicare service utilization patterns may have on private payers. The

specialty-specific utilization data are crucial for the final step of

volume-weighted averaging that brings the individual specialty scales

onto one scale, particularly when involving services performed very

frequently by specialties that see relatively few Medicare patients.

For example, the comment argued, to the extent that the cost

estimates for evaluation and management (E&M) services provided by

obstetricians and gynecologists and pediatricians differ

[[Page 58827]]

significantly from those of specialties that account for the bulk of

E&M services provided to Medicare patients, the use of an all-payer

claims database would probably yield different RVUs for E&M services.

Several surgical specialties urged that we clean the

Medicare claims data to eliminate obvious errors, such as data showing

a sometimes significant number of nonsurgeons or physician assistants

performing complex surgeries that can only be performed by surgical

specialties. This misreporting can decrease a specialty's practice

expense pool and should either be reassigned or excluded during

refinement.

One of the commenters recommended that Medicare claims data be

reviewed for the existence of a second listed surgical specialty

identifier. In addition, physician assistants' claims should use the -

AS modifier, and calculations should use only the time that is assigned

to the intraoperative period.

Three specialty organizations commented that many

physicians' self-designated specialties are incorrectly classified in

our claims data. For example, many cardiologists and geriatricians may

bill as internists, which may affect the respective practice expense

pools. Until these data become more accurate, one of the commenters

recommended that the specialty practice expense pools be recalculated

on an annual basis.

An organization representing transplant surgeons commented

that, as transplant surgery is not a designated specialty in the

Medicare claims database, many transplant surgeons designate themselves

as general surgeons, who have the lowest practice expense per hour of

any surgical specialty. The comment argued that this has led to a

significant underestimation of the costs associated with transplant

surgery.

Response: We would be interested in receiving any reliable national

utilization data on the procedure code level though, to date, we are

not aware of the existence of such a data source. We plan during the

refinement period to work with the medical community in order to

pinpoint problems in the Medicare claims data, to develop strategies to

improve their accuracy, and, if possible, to find reliable supplemental

data for those specialties not appropriately represented in the

Medicare database.

Comment: One organization commented that the Medicare frequency

numbers for occupational therapy codes will be understated because BBA

requires that all outpatient therapy services be paid under the

Medicare Physician Fee Schedule beginning January 1, 1999.

Response: We disagree. We have not included estimates for

frequencies of expected services of outpatient therapy services in

computing the practice expense RVUs. BBA specified that we pay for

these services using the physician fee schedule. BBA did not

incorporate these services into the fee schedule.

Comment: Many organizations representing radiation oncology, as

well as numerous individual commenters, argued that we erroneously

combined the SMS radiation oncology survey data with that of radiology.

The commenters argued that these two specialties should be dealt with

separately, as radiation oncology utilizes different codes and has

considerably higher costs than radiology.

Response: We had combined radiation oncology and radiology together

into one practice expense pool because of the small sample of radiation

oncologists in the SMS data. However, we now agree with the commenters

that these are two different specialties with differing practice costs.

Therefore, we have separated them into two separate practice expense

cost pools in order to calculate the practice expense per hour for each

of the specialties. For radiology, excluding radiation oncology, the

total practice expense per hour is $55.90. This is comprised of $17.90

for nonphysician payroll per hour ($9.70 for clerical payroll), $12.80

for office expense, $4.50 for supply expenses, $7.70 for equipment

expense, and $12.90 for other expenses. For radiation oncology, the

total practice expense per hour is $68.30. This is comprised of $23.70

for nonphysician payroll per hour ($9.20 for clerical payroll), $11.30

for office expense, $6.20 for supplies expense, $11.00 for equipment

expense, and $16.20 for other expenses.

Allocation of Practice Expense Pools to Codes

Comment: Several organizations commented on our use of work RVUs as

part of the allocation formula for indirect practice expense costs:

A primary care specialty group stated that we should not

allocate the indirect practice expenses using the work RVUs, since

there is no reason to believe that the costs of providing the service,

such as the cost of utilities, would vary by the intensity, where the

costs would vary by time. We should, therefore, use time rather than

work in our indirect allocation.

Another primary care organization commented that using work as one

allocator for indirect expenses inappropriately gives surgical

procedures with higher work RVUs substantially higher administrative

costs for billing activities than is given to evaluation and management

services. We should develop a standardized method to address

administrative staff costs.

Five other organizations argued that allocating indirect

costs based on a combination of direct costs and physician work RVUs is

inappropriate and treats unfairly chemotherapy and radiation oncology

services as well as other technical component services, since they

typically are assigned no work RVUs. Various recommendations were made

by these commenters to rectify what they see as discrimination against

these technical component services:

+ Indirect costs should be based on direct costs.

+ Physician time or clinical staff time should be used instead of

work.

+ We could allocate 50 percent of the indirect costs based on

direct costs and 50 percent based on physician work or time.

+ As an alternative for chemotherapy services, work could be

imputed by using the work to time ratio for other hematology or

evaluation and management services.

One commenter recommended that we vary the indirect cost allocation

methodology in recognition of the practice patterns of particular

specialties.

One accounting organization commented that the use of work

REUS is arbitrary and argued for the use of total dollars actually

spent to perform the procedures, not indirect splits, suggesting the

use of Activity Based Costing as a preferable methodology.

Response: In this final rule, we will use an allocation method for

the final rule that is basically similar to our proposed allocation

method. It is widely recognized by accountants and others that there is

no single best method of allocating indirect expenses to individual

services. If we used physician time as an allocator of indirect

expenses, we would be using the same values, whose accuracy have

already been questioned by some commenters, both to create the practice

expense pools and to allocate these pools to individual services. If we

used only direct costs, we would be giving full weight to CPEP values

that have not yet been refined. We agree that the use of physician work

as an allocator is not preferable in the long term. It likely provides

maximum advantage to hospital-based services in which the

[[Page 58828]]

physician incurs relatively few direct costs.

For this final rule, we are making a technical change to the

allocation method for indirect costs by using direct costs and the work

REUS scaled using the Medicare conversion factor instead of a factor

calculated using the physician time data. Because of questions raised

by commenters concerning the time data adjustments, we believe that it

is more appropriate to convert the work REUS into dollars using the

Medicare conversion factor (expressed in 1995 dollars, consistent with

the AMA SMS survey data). This will give somewhat less weight to work

while, at the same time, avoiding a major methodological change until

it has been examined further. We intend to work with the medical

community during refinement so that we ensure that our allocation

methodology is both appropriate and equitable.

Comment: Many major specialty societies, both primary care and

surgical, commented that we should not apply a different methodology

for allocating the practice expense pools to the radiology codes than

we do to all other codes. One commenter argued that multiplying the

current charge-based practice expense RVUs for radiology codes by some

percentage cannot yield a resource-based system.

Organizations representing urologists, pulmonologists,

cardiologists, and ophthalmologists commented that the uniform

reductions made in the radiology codes to maintain relative values

assumed that all radiology services are done only by radiologists, when

many of these procedures are performed by these other specialties. A

commenter stated that decisions regarding the practice expense values

for radiology codes done predominantly by other specialists should not

be made by one specialty. These organizations recommended that the

practice expense RVUs for their codes be established using the

allocation methodology used for all other services.

One specialty society, representing diagnostic vascular testing,

commented that the use of the existing radiology relatives to allocate

practice expense to the code level results in significantly larger

decreases in the technical component than in the professional component

of their services. The commenter recommended that if we continue to use

the radiology relatives, then we should reduce the professional

components of the codes more than the technical components because

practice expenses are greater for the technical component than for the

professional component.

The AMA supported the use of the radiology relative values for

actual radiology services, but recommended that this methodology should

be applied only to services that are performed predominantly by

radiologists.

The American College of Radiology endorsed the radiology relativity

of the radiology RVUs without exception, and they would oppose the

exclusion of individual radiology procedures since this is inconsistent

with the concept of radiology relative values. They argued that

maintaining the relativity of the radiology fee schedule--

Is consistent with generally accepted accounting

principles because it is based on surveys and physician panels;

Is widely accepted;

Solves rank order anomalies caused by raw CPEP data;

Simplifies the derivation of the professional component,

technical component, and global practice expense RVUs;

Is mandated by law, as the Omnibus Budget Reconciliation

Act of 1989 stated that for radiology services ``the Secretary shall

base the relative values on the relative values developed under section

1395m(b)(1)(A)****''; and

They also argue that we have recognized and honored the

statutory obligation to maintain the relationships in the radiology

relative value scale.

Another national organization representing diagnostic imaging

services also suggested keeping the radiology fee schedule as the

allocator for radiology, rather than the direct costs from the CPEP

data, as there would be even greater reductions on codes we allocated

using the CPEP relatives.

Response: Because the majority of specialties that perform

radiology services object to the use of the current practice expense

RVUs for radiology services, we cannot continue to use these RVUs.

However, since we are not making changes to the CPEP data for this

final rule and since the American College of Radiology has not had

sufficient opportunity to comment on the CPEP data because of our

proposed use of the current radiology RVUs, we are using the current

radiology RVUs to allocate the direct cost pools of the specialty

radiology until such time as the CPEP data for radiology services have

been validated. We will not use the current radiology RVUs for any

other specialty.

It should be noted that radiology services or components of

radiology services that lack work RVUs are handled as described in the

section on services without work RVUs. This alters the impact of using

the current radiology RVUs for the specialty radiology since we set the

global portion of a radiology service equal to the sum of the technical

and professional components.

Comment: One specialty society commented that, for one important

high volume pathology service, the proposed total professional

component practice expense RVU payment would be $11.37, approximately

$2 short of the administrative labor costs alone. The commenter wanted

more information on how our method splits administrative costs between

the professional and technical components. The commenter requested that

we provide a data set of the RVUs for administrative labor, office

expenses, and other expenses that result from our allocation method,

with a break-out of the professional and technical component RVUs for

services that have both components, so that the appropriateness of the

allocation method can be evaluated.

Response: Our methodology was described in the proposal, and we

also provided additional detailed data files that we used to develop

the proposed values. We will try to make additional data available if

the request is further specified.

Comment: The American College of Cardiology expressed concern that,

though it might be necessary to weight average the allocation to codes

according to the practice expense per hour of the different specialties

performing the service, this defeats the intent of Congress to

recognize actual costs and could also lead to negative incentives. The

commenter suggested that this is an issue that we and the specialties

should pursue.

The American Society of Echocardiography more specifically

commented that we should not include in the calculations for

cardiovascular diagnostic tests the even more unrepresentative data for

internists coding for these procedures. The society maintained that

because of the low equipment costs for internists, this blend dilutes

the RVUs allocated to these codes.

Response: The statute is very specific that Medicare is not to pay

specialty differentials. Therefore, weight averaging of the CPEP inputs

among specialties that do a service seems appropriate.

Other Issues

Comment: Many commenters, representing a broad spectrum of

specialties, expressed concern that reductions in payment for specific

services could have a negative impact on access to care. Many of these

[[Page 58829]]

commenters recommended that we monitor access and quality of care

issues that may arise as a result of the implementation of a resource-

based practice expense system.

Response: Maintaining access to high quality health care for

Medicare beneficiaries is, and will continue to be, a high priority,

and we will monitor available relevant data. However, we do not

anticipate that the implementation of resource-based practice expense

RVUs should lead to any major impediments to access to care. Any

impacts of this new system are being transitioned in over a 4-year

period, during which we will be refining both the practice expense per

hour data and the direct cost inputs. We will be working closely with

the medical community during this refinement period, and we are

confident that we will achieve a resource-based practice expense system

that will maintain our beneficiaries' access to the best possible

medical care.

Comment: One commenter was concerned about how the monthly

capitated payment for end-stage renal disease (ESRD) services was

handled under the top-down approach. The commenter argued that, though

the ``building block'' process used for the work RVUs for these

services does not translate perfectly for practice expense values, this

approach should still be utilized to calculate the practice expense

RVUs. In addition, the commenter questioned our choice of CPT 99213, a

mid-level office visit, to calculate physician time for ESRD services.

Response: We allocated the practice expense pool to ESRD services

using the CPEP inputs, as we did for almost all other services. We also

believe that the intensity of an average evaluation and management

service provides a reasonable estimate of physician time. These issues

can be further analyzed during refinement.

Comment: Two commenters noted that costs associated with the

supervision of diagnostic tests were not included in the technical

component amounts.

Response: In separate carrier manual instructions, we are revising

the level of physician supervision required for many diagnostic

services. For example, we are changing the requirements for most

ultrasound procedures from personal or direct supervision to general

supervision. We believe the required supervision for any remaining

services that are at the personal supervision level are generally

already reflected in the work RVUs. Therefore, we do not believe that

there are additional costs for physician supervision.

Comment: One commenter indicated that there will be a marked

increase in the volume of services paid under the physician fee

schedule as a result of BBA changes in payment for outpatient therapy

services. The commenter maintained that this increase should not

adversely affect future budget neutrality adjustments.

Response: Although payment for these outpatient therapy services

are based on payment amounts contained in the physician fee schedule,

these services are not included as part of the fee schedule pool for

budget neutrality calculations.

Comment: One commenter argued that the budget neutrality adjustment

is inappropriately applied because it does not recognize the savings

provided by the elimination of the facility payments for endoscopic

procedures that will move to the office setting.

Response: The statute specifies that there shall be budget

neutrality for physician fee schedule services. The budget neutrality

adjustment does not take into account payments to facilities.

Comment: Two commenters suggested that any fiscal adjustments made

to comply with BBA should be reflected in the conversion factor, or

other ratio, rather than be included in the calculation of the practice

expense RVUs, so that other payer reimbursement would not be affected.

Response: We do not completely understand these comments, but we

believe the request is consistent with our practice of making budget-

neutrality adjustments on the conversion factor.

Comment: Several commenters requested additional impact analyses

such as--

Comparison of actual practice expense by specialty with

expected practice expense payments, both by amount and by percent, for

both our proposed practice expense payments and the current fee

schedule practice expense RVUs;

Comparison of impacts by geographic area, including rural

and urban impacts;

Analysis of impacts on hospital, academic, and community-

based physicians;

Analysis of total Medicare and non-Medicare impact using

national claims case mix data; and

An analysis that would demonstrate to other payers the

degree to which our proposed payment rates are less than actual

practice costs.

Response: We lack the data to provide some of the requested

analyses. For example, we do not have national claims case mix data and

are unaware of the existence of such data. With regard to rural and

urban impacts, in the June 5, 1998 proposed rule we discussed the

limitations of such analyses given the structure of the Medicare

payment localities. We are unsure what the commenters are specifically

requesting on the issue of actual costs since we have based the

resource-based practice expense RVUs on the best available source of

multi-specialty actual cost data: the SMS survey. Cost analyses at the

individual practice level are problematic since, for example, we do not

have physician cost reports, but we are open to concrete suggestions on

how to perform such analyses. We also note that the Medicare public use

files are an excellent source of data for commenters who wish to

perform additional analyses that they believe are possible with the

data sources available to us.

Comment: One commenter requested that we make clear to Medicare

contractors that hospital-based pathologists who incur technical

component costs for nonhospital patients can be paid for both the

technical and professional components.

Response: This is a long-standing policy, and we are not aware of

any general problems in this regard. However, we would be willing to

discuss the issue with individual carriers if the commenter provides

more specific information.

Comment: One commenter recommended that we recalibrate the

allocation of RVUs to the pools for physician work, practice expense

and malpractice, as this allocation has remained constant since the

resource-based relative value scale was implemented in 1992.

Response: We are recalibrating the allocation this year to match

the Medicare Economic Index (MEI) weights. For example, work goes from

54.2 percent of the total to 54.5 percent, the practice expense portion

goes from 41.0 percent to 42.3 percent, and the malpractice portion

goes from 4.8 percent to 3.2 percent. (See Section II.D, ``Rebasing and

Revising the Medicare Economic Index.'') In order to prevent the work

RVUs from changing as a result of this, we are altering only the

practice expense and malpractice RVUs. The changes to the practice

expense and malpractice RVUs due to this are offset by an adjustment to

the conversion factor.

Comment: One commenter recommended that we should limit the

magnitude of the changes in physician payments resulting from the shift

to resource-based payment for practice

[[Page 58830]]

expenses by imposing some reasonable limit on payment increases and

decreases for individual services. The commenter maintains that section

1848(c)(4) of the Act, which authorizes the Secretary of Health and

Human Services to, ``establish ancillary policies, as may be necessary

to implement this section,'' provides statutory authority on which to

base such a policy. The comment pointed out that we invoked this

section in 1991 with reference to the transition to resource-based

payment for physician work.

Response: We believe that Congress intended the transition period

to be the mechanism by which we would mitigate the impacts of any

changes in payment brought about by the shift to resource-based

practice expense. Therefore, we believe it would be inappropriate for

us to impose further limits on payment increases or decreases.

Comment: One commenter maintained that the proposal violates both

the Regulatory Flexibility Act and the Paperwork Reduction Act of 1980

because the adequate filings required in both of these Acts did not

accompany the proposal. Additionally, the commenter stated that we did

not cite any evidence to support its contention that a Regulatory

Impact Statement is not required.

Response: We had included a Paperwork Reduction Act (PRA) section

in HCFA-1006-P that meets the requirements of the PRA of 1980.

One commenter stated that we do not cite any evidence in either of

our proposals to support our contention that no regulatory impact

statement is required. There may be some confusion about the purpose of

an impact statement and the difference between a regulatory impact

statement and a regulatory impact analysis (RIA). A regulatory impact

statement is a brief rational on why an analysis was not conducted. An

RIA is a complete analysis based on recent available data and is more

extensive.

An RIA was conducted in the proposed rule of June 5, 1998 (63 FR

30866). Absent this analysis, we would be required to furnish an impact

statement. Therefore, there is no violation of either the RIA or

Regulatory Flexibility Act requirements.

3. Other Practice Expense Policies

Site-of-Service Payment Differential

As part of the resource-based practice expense initiative, we are

replacing the current policy that systematically reduces the practice

expense RVU by 50 percent for certain procedures performed in

facilities with a policy that would generally identify two different

levels (facility and nonfacility) of practice expense RVUs for each

procedure code depending on the site-of-service.

Some services, by the nature of their codes, are performed only in

certain settings and will have only one level of practice expense RVU

per code. Many of these are evaluation and management codes with code

descriptions specific as to the site of service. Other services, such

as most major surgical services with a 90-day global period, are

performed entirely or almost entirely in the hospital, and we are

generally providing a practice expense RVU only for the out-of-office

or facility setting.

In the majority of cases, however, we will provide both facility

and nonfacility practice expense RVUs. The higher nonfacility practice

expense RVUs are generally used to calculate payments for services

performed in a physician's office and for services furnished to a

patient in the patient's home, or facility or institution other than a

hospital, skilled nursing facility (SNF), or ambulatory surgical center

(ASC). For these services, the physician typically bears the cost of

resources, such as labor, medical supplies, and medical equipment

associated with the physician's service.

The lower facility practice expense RVUs generally are used to

calculate payments for physicians' services furnished to hospital, SNF,

and ASC patients. The costs for nonphysicians' services and other

items, including medical equipment and supplies, are typically borne by

the hospital, by the SNF, or the ASC.

We received the following comments on our site-of-service payment

differential proposal.

Comment: We received several comments concerning the

appropriateness of our site-of-service proposal:

Several specialty groups commented that they agreed with

eliminating the site-of-service differential and replacing it with two

levels of payment.

A national specialty society representing

gastroenterologists, as well as several hundred individual commenters,

strongly opposed the elimination of the current site-of-service

differential and replacement of it with the facility and nonfacility

resource-based practice expense RVUs. The comments argued that we

should not have established different practice expense RVUs for

facility and nonfacility settings for gastrointestinal endoscopy codes

43234 through 45385 because:

It is unsafe to do these procedures in the office and will

thus jeopardize patient safety;

It creates an incentive to provide care in the

inappropriate office setting; and

It is not authorized by legislation, is against the intent

of BBA to have different payment levels for different settings, and is

likely to result in legal challenge.

The commenter recommended that we drop the office and out-of-office

differential in practice expense payment.

One organization commented that our site-of-service

proposal will exacerbate the ability to subsidize uncompensated care

and suggested exempting teaching physicians from the new site-of-

service provision. It also suggested that HCFA should also monitor the

effects of the site-of-service policy.

The AMA, the American Hospital Association, and three

other organizations commented that payment differentials should not

provide an incentive for physicians and patients to choose one site

over another. Some physician groups are concerned that the differential

will accelerate the shift of some services from facility to nonfacility

settings at the expense of patient safety. They asserted that claims

data on changes in place of service should be made available and this

issue should be one focus of refinement efforts.

Response: We believe that, to the extent that the differing RVUs

for in-office and out-of-office services reflect the relative

differences in practice costs for performing those services, we have

not created incentives to provide services in inappropriate settings.

We are required by both the Social Security Act Amendments of 1994 and

BBA to develop resource-based practice expense RVUs, based on

physicians' actual costs. All of our data indicate that physicians'

practice expenses are higher in the office, where the physician must

incur all the costs of staff, equipment, and supplies, than in a

facility that provides and is paid separately for these resources. As

the facility and nonfacility costs to the physician can vary by a

considerable amount, we believe that adopting a single average payment

for both sites would consistently underpay in-office procedures, and

overpay those performed in a facility and would thus be inherently

inequitable, not resource-based, and contrary to the intent of the law.

Furthermore, we are not aware of any studies showing that codes 43234

through 45385 are being unsafely performed in offices. We have complete

[[Page 58831]]

confidence that physicians will continue to exercise their best

clinical judgment as to the most appropriate setting for their

patients.

Comment: One specialty society stated its support for the proposed

change in the site-of-service payment, as long as it does not result in

nonpayment for services actually provided. For example, there are no

practice expense RVUs for emergency intubation in the nonfacility

setting, though this service may occasionally have to be performed in

the office.

Response: If a service for which there are only facility RVUs is

performed in the office, the facility rate will be paid.

Comment: The American Urological Association commented that certain

codes--50590, 52234, 52235, 52240, 52276, and 52317 were

inappropriately assigned nonfacility PERVUs, as it is not safe to

perform these services in the office.

Response: We would need more data to demonstrate that performing

these services in the office is not appropriate before we would

eliminate the nonfacility RVUs. We are willing to review such

information during the refinement process. Such information should be

submitted to HCFA, Office of Clinical Standards and Quality.

Comment: Two societies representing pulmonologists commented that

critical care is listed with facility and nonfacility practice expense

RVUs, although it is nearly always performed in an inpatient setting.

One organization representing psychiatrists noted that CPT codes

90816 through 90829 are restricted to the inpatient hospital and

partial hospital and residential care settings, and that CPT code

90870, electroconvulsive therapy, would not generally be performed in

an office setting. The commenter recommended that the final rule list

RVUs for only the facility setting.

Response: We are not deleting RVUs proposed for the nonfacility

setting in this final rule, but will be considering this issue during

refinement. We would note, however, that services performed in the

residential care setting would be paid by using the nonfacility RVUs.

Comment: One commenter pointed out that in our proposed rule we

list the services that, by nature of their codes, would only have one

level of practice expense; this list includes codes 99321 through 99333

and 99341 through 99350. However, in Addendum C, both facility and

nonfacility values are given and the facility values are higher than

the nonfacility values for most of these codes. These inconsistencies

should be corrected. Another commenter submitted a list of some codes

where the facility practice expense RVUs are higher than the in-office

values.

Response: We thank the commenters for pointing out these

discrepancies. The instances of higher facility RVUs are an artifact of

our indirect methodology and reflect the differing mix of specialties

performing a service in each setting. We will look at this more closely

during the refinement process.

Comment: One specialty society commented that the dual energy x-ray

absorptiometry codes have the same practice expense RVUs for both the

in-office and out-of-office setting. The comment recommended that the

in-office RVUs be adjusted to reflect the high costs of equipment for

the office-based physician.

Response: More specific data will be needed on the actual costs of

the equipment so that we can address any changes to the CPEP data

during the refinement process.

Comment: Three organizations representing outpatient therapy

services commented that, though outpatient rehabilitation providers

will be paid the nonfacility rate, there are higher costs for providing

rehabilitation services in an SNF or hospital than in a doctor's

office. These costs are not reflected in the CPEP data and are grossly

underestimated in the practice expense RVUs. There should be a special

higher site-of-service differential to be applied when outpatient

therapy services are furnished in provider settings.

Response: The site-of-service differential is intended to ensure

that the Medicare program avoids making duplicate payments to

practitioners and facilities for the same services. BBA specified that

outpatient therapy services, which prior to January 1, 1999 have been

paid by Medicare using a cost reimbursement system, should be paid

using the physician fee schedule effective January 1, 1999. As

discussed more fully in the June 5, 1998 proposed rule, we believe it

would be inappropriate, and inconsistent with how we pay for other

services under the fee schedule, to pay a higher rate for these

outpatient rehabilitation services when they are provided in an SNF or

hospital.

Comment: One specialty organization recommended that we confirm

that facility-based practice expenses exclude only those practice

expenses that are actually provided and paid for by the facility. We

should provide a data file summarizing which resources are deemed to be

provided by facilities, so that physician organizations can identify

any errors or anomalies in HCFA's assumptions. For example,

vitreoretinal physicians must often provide clinical staff for out-of-

office procedures, and it is essential that there is a mechanism for

the physician to be reimbursed.

Response: The differential between the facility-based and office-

based practice expenses is determined by the CPEP inputs for staff

labor time, supplies and equipment attributed to each site and the mix

of specialties providing the services in each site. We will consider

further adjustments to the CPEP inputs during the refinement period.

Comment: The American Speech-Language-Hearing Association commented

that the extra costs for patient acuity and travel should be added to

the site of service differential.

Response: This is an issue for which specific data is needed and

that should be addressed during the refinement period.

Additional Relative Value Units for Additional Office-Based Expenses

for Certain Procedure Codes

Usually office medical supplies or surgical services in the

physician's office are included in the practice expense portion of the

payment for the medical or surgical service to which they are

incidental. The November 1991 final rule (56 FR 59522) included a

policy for 44 procedure codes that allowed a practice expense RVU of

1.0 to pay for the supplies that are used incident to a physician's

service but generally are not the type of routine supplies included in

the practice expense RVUs for specific services. This list of procedure

codes was expanded in the December 1993 final rule (58 FR 63854).

Included in this list of procedures for which an additional amount may

be paid for supplies if the procedure is performed in a physician's

office are closing a tear duct (CPT code 68761) and billing for a

permanent lacrimal duct implant (HCPCS A4263), inserting an access port

(CPT code 36533) and billing for an implantable vascular access portal/

catheter (A4300), and performing cystoscopy procedures and billing for

a surgical tray (A4550).

We proposed to revise this policy under the resource-based practice

expense system. We believe the supply costs that this policy is

designed to cover were included in the supply inputs identified by the

CPEPs and the AMA's SMS survey. Thus, they were included in the

practice expense RVUs for each relevant procedure code. Therefore, we

proposed to discontinue separate payment for supply codes A4263, A4300,

A4550, and G0025.

[[Page 58832]]

Below are the comments we have received on this issue:

Comment: While two primary care organizations agreed with our

proposal to discontinue separate payment for select supply codes, three

other specialty societies opposed elimination of the current payment

for these supplies. One comment argued that incident-to supplies were

not counted in the CPEP process, and the other that this separate

payment is a preferred method of recognizing added costs to physicians.

Response: We believe that the current practice expense RVUs include

the payment for these supplies. However, we are willing to consider

evidence that the CPEP inputs do not reflect the appropriate use of

these supplies for any service during the refinement process.

Comment: The AMA, as well as four physician specialty

organizations, recommended phasing out separate payment for supplies

during the transition instead of implementing it all at once in 1999.

Response: We agree and we will be phasing out the separate payment

for these supplies over the transition period.

Anesthesia Services

Although physician anesthesia services are paid under the physician

fee schedule, these services do not have practice expense RVUs. Rather,

payment for physician anesthesia services is determined based on the

sum of allowable base and time units multiplied by a locality-specific

anesthesia CF.

Since the beginning of the physician fee schedule, overall budget

neutrality and work adjustments have been made to the anesthesia CF and

not to the base and time units. We are following the same process and

making an adjustment to the anesthesia CF to move anesthesia services

under the resource-based practice expense system. The adjustment to the

anesthesia CF is 3.0 percent (phased in other the transition period).

4. Refinement of Practice Expense Relative Value Units

Section 4505(d)(1)(C) of BBA requires the Secretary to develop a

refinement process to be used during each of the 4 years of the

transition period. In the June 5, 1998 proposed rule, we proposed

keeping the practice expense RVUs as interim RVUs until at least the

fall of 1999, and possibly beyond 1999, if we believe more time is

needed to identify and correct errors. We also solicited

recommendations for a refinement process in subsequent years.

In the June 1998 proposed rule, we did not propose a specific

process for a long-term refinement process. Rather, we set out the

parameters for an acceptable refinement process for practice expense

RVUs. Such a refinement process would enable us to do the following:

Review and refine practice expense and hour data.

We suggested that we would be prepared in the future to refine the

practice expense and hour data of those specialties well-represented in

the SMS data if we receive compelling evidence that the SMS data are

incorrect. We invited comments on potential revisions to the SMS survey

or alternative sources of data and on the need to confirm, through

audit or other means, the survey data that would be used for long term

refinement.

Obtain and review practice expense and hour data for

specialties or practitioners not included in the SMS survey.

We invited comments on the appropriateness of our crosswalks and

suggested that any arguments that the practice expense and hour data

should be changed would be strengthened by the submission of survey

data comparable to the SMS data.

Address anomalies, if any, in the code-specific Harvard

and RUC physician time data.

We proposed that we would not revisit work RVU issues that have

been already addressed as part of the 5-year review.

Address anomalies, if any, in the code-specific CPEP data

on clinical staff types and times, quantity and cost of medical

supplies, and quantity and cost of medical equipment.

We proposed that the codes identified by commenters as having

possible errors during the comment periods of the proposed rule and the

final rule will constitute the universe of codes whose code-specific

CPEP data should be reviewed, as it was not our intention to review the

inputs for all the codes on an annual basis. We also proposed that we

obtain the advice of practicing physicians on the appropriateness of

recommended changes to the CPEP inputs. We suggested two principal

options for obtaining that advice, either HCFA-convened multiple

specialty panels or the RUC or new organization like the RUC that

includes broad representation across all specialties and includes

nonphysician practitioners. The panels would need to meet no later than

the summer of 1999 to consider the comments we received on both the

proposed rule and the final rule. We invited comments on these options

and solicited any other recommendations.

Refine, as needed, our process of developing practice

expense RVUs for codes not addressed by the CPEP process, for example,

codes that were new in 1996, 1997, and 1998.

We developed practice expense RVUs for codes that were new in 1996,

1997, and 1998 by comparing the new codes to other comparable codes for

which we had actual CPEP data and we invited comments on the

appropriateness of our crosswalks. Also, we solicited new code-specific

data on clinical staff types and times, quantity and cost of medical

supplies, and quantity and cost of medical equipment.

Develop practice expense RVUs for codes that will be new

in 1999 and beyond.

Because of time constraints, we proposed that we develop interim

practice expense RVUs for new 1999 codes by preparing a crosswalk of

CPEP data from existing codes. Though the practice expense values for

these codes will be subject to comment, the interim values will serve

as the basis of payment during 1999.

Beyond 1999, we proposed two possible options that could be used to

develop practice expense RVUs for new codes. First, we could continue

to crosswalk new codes to existing codes and review comments we receive

with the assistance of our multiple specialty panels. Second, we could

request the RUC or a RUC-like organization to provide recommended

practice expense RVUs or recommended inputs before publication of the

proposed rule, as we do with work RVUs. We invited comments on these

options and solicited any other recommendations. Following are the

comments that we have received on our proposal for refinement of the

resource based practice expense RVUs:

Comment: The RUC submitted the following comments on the refinement

process:

The RUC stated its interest in reviewing any comments that

we receive on the accuracy of the physician time data for specific

codes.

The RUC commented that many members of the RUC, the RUC's

Advisory Committee and the Health Care Professionals Advisory Committee

(HCPAC) observed or participated in the entire CPEP process. The

comment stated that, based on that experience and on extensive

subsequent discussion, it became clear that the RUC, through its

experience in developing physician work relative value units, should

also seek involvement in developing

[[Page 58833]]

recommendations on practice expense relative values.

The RUC comment contained the following proposal for

refinement of the CPEP data:

The RUC proposed the development of a new Advisory Committee, the

RUC Practice Expense Advisory Committee (PEAC) to review comments on

the code-specific CPEP data (that is, clinical staff types and times,

quantity and cost of medical supplies, and quantity and cost of medical

equipment) during the refinement period. This committee would report to

the RUC, which would make final recommendations to HCFA. The committee

composition would mirror the RUC and include additional representation

from the American Nurses Association, the American Academy of Physician

Assistants, the Medical Group Management Association, and four other

non-MD and DO organizations to encourage input from nurses and practice

managers in the process.

The committee would include one representative from the following

organizations:

Chair (To be selected by the Chair of the RUC);

American Medical Association;

American Osteopathic Association;

CPT Editorial Panel;

Health Care Professionals Advisory Committee;

Two rotating seats for the RUC Advisory Committee

(currently held by Rheumatology and Child Psychiatry);

American Academy of Dermatology;

American Academy of Family Physicians;

American Academy of Neurology;

American Academy of Ophthalmology;

American Academy of Orthopaedic Surgeons;

American Academy of Otolaryngology--Head and Neck

Surgery, Inc.;

American Academy of Pediatrics;

American Academy of Physician Assistants;

American Association of Neurological Surgeons;

American College of Cardiology;

American College of Emergency Physicians;

American College of Obstetricians and Gynecologists;

American College of Physicians;

American College of Radiology;

American College of Surgeons;

American Nurses Association;

American Psychiatric Association;

American Society of Anesthesiologists;

American Society of Internal Medicine;

American Society of Plastic and Reconstructive

Surgeons;

American Urological Association;

College of American Pathologists;

Medical Group Management Association; and

Society of Thoracic Surgeons.

Four seats would be added to include other organizations representing

nursing or practice managers, for example, National Federation of

Licensed Practical Nurses or American Licensed Practical Nurses

Association, American Association of Medical Assistants, Association of

Surgical Technologists, Professional Association of Health Care Office

Managers, and Healthcare Financial Management Association.

Also contributing to this refinement process would be 80 members of

the RUC Advisory Committee, representing those specialty societies with

a seat in the AMA House of Delegates who have elected to participate in

the RUC process. The RUC process will also include input from the

HCPAC, which represents audiologists, chiropractors, nurses,

occupational therapists, optometrists, physical therapists, physician

assistants, podiatrists, psychologists, social workers, and speech-

language pathologists.

The RUC has not yet implemented the PEAC, pending the initial

response(s) to the proposed rule. However, the RUC has authorized the

RUC Chair to convene the PEAC in a timely fashion and requests that we

share all comments we wish to have reviewed regarding changes to the

CPEP data with the RUC soon after the conclusion of the comment period

on the final rule. The RUC would assure that all members of the RUC

Advisory Committee and HCPAC Advisory Committee are contacted regarding

the comments and will solicit interest in bringing recommendations

forward to the PEAC on these comments. Specialty societies would

collect additional data and, where possible, form a consensus

recommendation with other interested specialty societies or HCPAC

organizations. After considering the comments and the specialty society

recommendation, the PEAC would present a report with their

recommendations to the RUC which would submit its recommendations to

us, along with its usual submission of work relative value

recommendations, at the end of May.

The RUC comment contained the following proposal for refinement of

the crosswalk for 1996, 1997, 1998, and 1999 new codes. The RUC

proposes that the PEAC, when constituted, also review any comments on

the final rule that are forwarded by us regarding the appropriateness

of crosswalks and extrapolated code-specific data for those codes that

were new in 1996, 1997, 1998, and 1999. The RUC would encourage

specialty societies and HCPAC organizations to collect data or evidence

to support new code-specific data on clinical staff types and times,

quantity and cost of medical supplies, and quantity and cost of medical

equipment for each of those new services that are frequently performed.

The RUC comment also contained the following proposal for the

development of practice expense RVUs for codes that will be new in 2000

and beyond. The RUC proposes that recommendations for practice expense

RVUs for new codes in 2000 and beyond be developed simultaneously with

the work RVU recommendations. After a new code is approved by the CPT

Editorial Panel, specialty societies would conduct a survey that would

include a section on physician work and a section on direct expense

inputs for that service. The specialty society would then present their

recommendations on both the work and practice expense RVUs, along with

all of their supporting data from the survey, to the RUC to review. The

RUC would review both RVUs and submit the recommendations to us in a

format similar to its current submission.

The RUC comment stated that the majority of the discussion on the

expense inputs would focus on the clinical staff time and, potentially,

the comparison between this time and the physician time. This time

information will not be available for new codes. If we were to utilize

two different processes for work and practice expenses for new codes,

it would be necessary to establish a process to reconcile differences

in time between the two sets of recommendations. The RUC comment

recommended that the RUC process represents the best choice for

reviewing this relationship and providing verifiable recommendations.

The comment also recommended that for new codes for services performed

by nonphysicians only, the RUC HCPAC Review Board would review both

work and practice expense RVUs and would submit their recommendations

to us directly. Throughout the updating process of practice expense,

the RUC will also seek the input of nurses, practice managers, and

others who have expertise in physician practice expense.

Comment: Almost all specialty societies and individuals commenting

on refinement, as well as MedPAC and the AMA, agreed that the RUC or a

group like the RUC should undertake the refinement of the CPEP input

data for individual procedure codes, including reviewing our crosswalks

for CPT codes new in 1996 through 1999, and recommending practice

expense values for codes that will be new in 2000 and beyond. Several

specialty societies, while supporting the role of the RUC in handling

the complex issue

[[Page 58834]]

of refining CPEP data, stated that the RUC would need to include

nonphysicians such as practice administrators and nurses in order to

accomplish this task, as staff in management roles have more expertise

than practitioners on the intricacies of practice management and the

details of practice expenses. The American Podiatric Medical

Association commented that podiatry must have full participation on an

equal basis with other physicians' specialties; membership on the HCPAC

would not be sufficient. The American Academy of Audiology has also

commented that they want an audiologist to be represented on any group

refining RVUs and the American Occupational Therapy Association

commented on the need for therapy representatives. The Society of

Vascular Technology/Society of Diagnostic Sonographers commented that

they would support the use of a RUC-like group only if there would be

appropriate representation of technical component service providers;

otherwise they would not favor the RUC handling refinement issues.

Response: As previously described, there are four key data items we

used for our methodology. Three are needed to develop practice expense

``pools'' per specialty, and the fourth is needed to allocate these

aggregate practice cost pools to individual CPT codes. The data sources

we used are as follows:

Practice Cost Pools

1. AMA SMS survey data for practice costs per hour, by specialty.

2. Harvard and RUC data for length of time to perform each service

3. Medicare claims frequency data for each procedure.

Allocation to Individual CPT Codes

4. ABT CPEP resource inputs per CPT code.

Refinement requires consideration of three broad types of

activities:

1. Review of broad strategy and general methodology issues.

Examples of these types of activities include review of the basic

methodology, formulas for allocation of indirect expenses, development

of criteria for consideration of alternative data sources, survey

sample size consideration, development of possible approaches to

validate survey data, and other similar methodology issues.

2. Refinement of specialty level practice cost per hour data.

3. Refinement of detailed code level data (CPEP data, procedure

time data).

The RUC has proposed to be involved in the refinement process by

creating a subcommittee to advise it, referred to as the Practice

Expense Advisory Committee (PEAC). It would consist of over 35 members

(RUC specialties supplemented by other groups such as MGMA, nurses,

practice managers and others). The vast majority of specialties that

commented on the refinement process indicated their support for the RUC

proposal or for a similar process.

Initial Refinement Process

We continue to believe that our proposed general methodology is

sound and responsive to the BBA requirements. We did receive a large

variety of comments about broad methodology issues, practice expense

per hour data, and detailed code level data. As described elsewhere, we

have made some adjustments to our original proposal for a select number

of situations in which we were convinced an adjustment was appropriate

at this time. We are considering other comments for possible future

refinement. The values of all codes will be considered interim for 1999

and for future years during the transition period. Rather than specify

a detailed refinement process at this time, we will continue to work

with the professional community to further develop the refinement

process. We will modify the process as necessary during the period,

based on our experiences and recommendations received.

Our plans to start the initial refinement process are as follows:

1. We plan to establish a mechanism to receive independent advice

for dealing with broad practice expense RVU technical and

methodological issues. We are considering contractor support and/or

other ways of obtaining independent advice and assessments of comments

that we have already received or will receive in the future about

important technical issues, especially those that result in major

redistributions among specialties. We welcome continuing advice and

specific recommendations from the GAO, MedPAC, and the Practicing

Physicians Advisory Council. We will also continue to actively consult

with physician and other groups about these issues. We are particularly

interested in receiving additional comments and suggestions about

methodology from organizations that have a broad range of interests and

expertise in practice expense and survey issues. All comments will be

considered, but we especially encourage organizations that represent a

broad range of physician, practitioner, and provider groups (for

example, groups that represent both ``winning'' and ``losing''

specialties) with expertise in practice costs issues to make specific

recommendations regarding the following methodology issues:

Bias in ``Top Down'' methodology. Some commenters believe

the methodology we are using to establish initial practice expense RVUs

is flawed. They indicate that it is inappropriate to pass through costs

and that the method will perpetuate inequities among specialties

because high revenue specialties have more to spend on their practices.

One possible way of dealing with this issue is to further analyze the

differences in practice costs per hour by specialty to determine the

``reasonableness'' of these differences. Edits or other adjustments in

practice costs data could be established if appropriate.

Validation of data. It is difficult to establish an

unbiased method for refining and validating practice costs data. Data

from the SMS survey are self-reported. There could be major incentives

in the future for respondents to expand the definition and reporting of

``costs'' for purposes of this methodology. In addition, we would

expect that individual specialties would be likely to bring undervalued

practice expense RVUs to our attention, but would not have an incentive

to report overvalued practice expense RVUs. We welcome comments on the

following:

+ What specific methods should HCFA use to validate key components

of the data used for establishing practice expense RVUs?

+ What specific approaches should be used to ensure fairness among

specialties?

+ Should we, for example, require that the specialty obtain review

by an independent auditor before we consider changes in the data?

Criteria for using alternative survey data. The primary

source of practice costs per hour data was the AMA's SMS survey. Some

specialties have already requested that alternative, supplementary, or

more recent data be used. We welcome comments on what specific criteria

should be established for use of these alternative data?

Allocation of indirect expenses. We allocated indirect

expenses to individual CPT codes based on physician work and direct

expenses. Some commenters suggest that indirect expenses should be

allocated by alternative methods, such as physician time and direct

expenses, or just direct expenses. We would welcome your

recommendations.

2. RUC/PEAC. We would welcome comments from the RUC/PEAC or any

other organization or individual for individual code level data--both

for

[[Page 58835]]

resource inputs and time data. The RUC and PEAC would function as an

entity independent from us, much like the current RUC operates for

purposes of providing comments on work RVUs. We also recognize the RUC/

PEAC may wish to comment on other aspects of the process, such as

methodology. We would consider such comments along with those received

from others and would likely discuss them as part of the process

described in paragraph 1 above. However, we wish to emphasize that, as

in our dealings with the current RUC, we would retain the ultimate

authority and responsibility to establish practice expense RVUs.

3. Comments on the refinement process.

We seek comments January 4, 1999 and suggestions on any aspect of

the refinement process as described above.

Comment: All but one of the organizations commenting on the issue,

as well as many individual commenters, recommended that we keep the

practice expense RVUs as interim for the 4 years of the process. One

national specialty society recommended we make the revised practice

expense RVUs interim for 1 year, only extending the period based on the

number of misvalued procedures identified and also ensuring that only

changes based on compelling evidence are made.

Response: We stated in our proposed rule that we would keep the

practice expense RVUs as interim through at least through 1999. Due to

the complexity of the issues that need to be addressed during

refinement, we now believe that a longer period could be needed to

finalize all the RVUs. Therefore, as stated above, we will be keeping

all the RVUs as interim throughout the transition period.

Comment: Many commenters recommended acceptance of information from

alternative data sources during the refinement period, including data

provided by specialty societies. One commenter suggested that we

develop a standard survey instrument for specialties to use. Another

organization commented that we should consider using MGMA's cost survey

as an alternative source of information that could be used to

supplement, validate, or otherwise expose further areas of refinement

in the SMS, or perhaps be a substitute for SMS in the future. This

comment also stated that we should remain open to challenges about

current practice expense per hour calculations from all specialties,

even from those larger specialties represented in the SMS survey, in

both the short and long term. Many commenters also recommended that we

develop a process for validating any supplemental data that we use.

Response: We believe that the refinement process that we outlined

above is responsive to these concerns. One of the major purposes of the

technical support and advice mentioned will be to help us to determine

what additional data, whether from large or small specialties, are

needed, whether submitted information is valid, and whether and how

alternative sources of data, such as the MGMA survey, can be used to

validate the assumptions used to create the practice expense pools.

Comment: One specialty society commented that we should conduct

specialty-specific surveys for all HCFA-designated specialties during

the refinement period. The comment stated that it is not reasonable for

us to put the burden of ``oversample'' costs, which exceed $100,000 on

the HCFA-designated specialties that the AMA has chosen not to include

in its annual survey sample.

Response: Decisions on what surveys are needed, what the criteria

should be for those surveys, who should conduct the surveys, and who

should fund them will be made as we address these issues during

refinement.

Comment: One organization recommended that the refinement process

distinguish between intra-specialty refinement issues that can be

resolved within a specialty, and inter-specialty refinement issues

which change the cost pool of one specialty with respect to all other

specialties.

Response: Again, we believe that our chosen refinement process

addresses this concern. The intra-specialty refinement issues will, for

the most part, revolve around adjustments to the CPEP data and will be

referred to the PEAC for their recommendations. Those issues that

affect the relative size of the practice expense pools are generally

more fundamental methodological questions for which we will seek

technical and methodological input as well as input from the medical

community.

Comment: One national organization commented that the SMS data

appears to be the best data available for the purpose of determining

practice expense RVUs and that SMS data closely mirrors the specialty's

own data. The comment recommended that refinement should focus on

identifying the proper inputs for particular codes, rather than

adjusting the current SMS data, or revamping the design of the survey,

which currently does not reflect a bias towards inflating practice

expenses for individual specialties.

Response: We agree that the SMS survey is, at present, the best

data available for determining aggregate specialty-specific practice

costs. We believe one of the purposes of refinement is to pinpoint

where appropriate adjustments need to be made in the data that we use.

We also agree, as mentioned above, that we will need to develop a

system to validate the accuracy of data collected in the future.

Comment: One commenter recommended that we ensure that cost-saving

innovations are not discouraged by the refinement process. This means

that the practice expense scale should not be refined to immediately

reflect the full impact of every cost-saving development, or

specialties will be permanently discouraged from implementing such

innovations.

Response: We are required by law to develop practice expense

relative values that are resource-based. Therefore, we do not believe

that we could develop an alternative approach that would only apply to

cost-saving innovations. We also do not believe that the use of

resource-based practice expense RVUs will have a significant effect on

cost-saving innovations; on the contrary, the use of a prospectively

determined payment system, in itself, offers an incentive for any

individual practitioner to cut costs.

Comment: Two commenters recommended that codes for entirely new

procedures and technologies have their practice expense values taken

from the all-specialty practice expense pool; two organizations

recommended that codes that apply to new technologies to replace

current procedures come from the pertinent specialty's pool.

Response: There would be no budget neutrality adjustment for new

codes that represent entirely new procedures and technologies. However,

we believe that, in the majority of cases (since we would typically

expect some type of substitution of new services for more established

services) a budget neutrality adjustment would be appropriate. In such

a case, we would spread the adjustment across all services. However,

new codes that merely replace existing services would only affect the

pertinent specialty's pool at the time when the practice expense pools

are recalculated.

Comment: A primary care specialty group recommended that we leave

undisturbed the Harvard and RUC time data during the refinement period

because of the implications for the work RVUs assigned to codes, while

a surgical specialty group recommended that we remain open to revising

the Harvard physician time data.

[[Page 58836]]

Response: The physician time data plays an important role in

determining the size of each specialty's practice expense pool and, for

this reason, it is important that this data be as accurate as possible.

Therefore, we cannot rule out the need for adjustments in the

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