Medicare Program; Revisions to Payment Policies and Adjustments to the Relative Value Units Under the Physician Fee Schedule for Calendar Year 1996

SUMMARY: This final rule revises various policies affecting payment for

physician services including Medicare payment for physician services in

teaching settings, the relative value units (RVUs) for certain existing

procedure codes, and establishes interim RVUs for new and revised

procedure codes. The rule also includes the final revised 1996

geographic practice cost indices.

The rule redesignates current regulations on teaching hospitals, on

the services of physicians to providers, on the services of physicians

in providers, and on the services of interns and residents. This

redesignation consolidates related rules affecting a specific audience

in a separate part and, thereby, makes them easier to use.

DATES: Effective Date: This final rule is effective January 1, 1996,

except part 415 which is effective July 1, 1996.

Comment Date: We will accept comments on interim RVUs for new or

revised procedure codes identified in Addendum C. Comments will be

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

below, no later than 5 p.m., February 6, 1996.

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

following address: Health Care Financing Administration, Department of

Health and Human Services, Attention: BPD-827-FC, P.O. Box 7519,

Baltimore, MD 21207-0519.

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

and 3 copies) to one of the following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,

Washington, DC 20201,

or

Room C5-09-26, 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 BPD-827-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 309-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 comments that relate to information collection requirements,

mail a copy of comments to: Allison Herron Eydt, HCFA Desk Officer,

Office of Information and Regulatory Affairs, Rm. 10235, New Executive

Office Bldg., Washington, DC 20530.

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FOR FURTHER INFORMATION CONTACT: Shana Olshan, (410) 786-5714 (for all

issues except those related to physician services in teaching

settings). William Morse, (410) 786-4520 (for issues related to

physician services in teaching settings).

SUPPLEMENTARY INFORMATION: In this final rule, we provide background on

the statutory authority for and development of the physician fee

schedule. We also explain in detail the process by which certain

interim work RVUs are reviewed and, in some cases, revised.

Section 1848(c)(2)(B) of the Social Security Act (the Act) provides

that adjustments in RVUs resulting from an annual 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. Thus, the statute allows a $20 million tolerance for

increasing or reducing total expenditures under the physician fee

schedule. We have determined that net increases because of changes in

RVUs for codes reviewed as part of a refinement process, the addition

of new codes to the fee schedule, and the revisions in payment policies

would have added to projected expenditures in calendar year 1996 by

approximately $140 million. Therefore, it is necessary to adjust the

physician fee schedule conversion factors (CFs). We have made the

adjustments in such a manner as to achieve budget neutrality as we were

best able to estimate. As a result, the total projected expenditures

from the revised fee schedule are estimated to be the same as they

would have been had we not changed the RVUs for any individual codes or

added new codes to the fee schedule. We have adjusted all CFs by a

uniform adjustment factor of 0.9964, which results in a uniform

reduction of 0.36 percent to the CFs for all services.

The CF is a national value that converts RVUs into payment amounts.

There are three separate CFs: one for surgical services, one for

primary care services, and one for nonsurgical services other than

primary care. The CFs are updated annually.

Anesthesia services are paid differently from other physicians'

services under the fee schedule. Payment for anesthesia services is

based on base unit RVUs that are assigned to each service and on time

units that can vary by procedure. The base and time units are

multiplied by an anesthesia-specific CF, not the CFs used for surgical,

nonsurgical, or primary care services.

This final rule also contains the second half of the revisions to

the geographic practice cost indices (GPCIs). Section 1848(e)(1)(c) of

the Act requires that the GPCIs be reviewed and, if necessary, revised

at least every 3 years. The first review was required by 1995. The

first-half of the revision was implemented in 1995. The second half,

[[Page 63125]]

published in Addendum D, is effective January 1, 1996.

Addenda to this rule provide the following information:

Addendum A--Explanation and Use of Addenda B through E.

Addendum B--1996 Relative Value Units and Related Information Used in

Determining Medicare Payments for 1996.

Addendum C--Codes with Interim Relative Value Units.

Addendum D--1996 Geographic Practice Cost Indices by Medicare Carrier

and Locality.

Addendum E--Procedure Codes Subject to the Site-of-Service

Differential.

The RVUs and revisions to payment policies in this final rule apply

to physicians' services furnished on or after January 1, 1996.

For those codes identified in Addendum C of this final rule as new

or revised codes, the RVUs and update indicators are considered to be

interim as they have not been published before this final rule.

Therefore, we will accept comments on these interim RVUs and update

indicators if they are received no later than 5 p.m. February 6, 1996.

The RVUs for the remaining codes are final.

To assist readers in referencing sections contained in this final

rule, we are providing the following table of contents. Some of the

issues discussed in this final rule affect the payment policies but do

not require changes to the regulations in the Code of Federal

Regulations.

Table of Contents

I. Background

A. Legislative Requirements

B. Published Changes to the Fee Schedule

C. Components of the Fee Schedule Payment Amounts

D. Summary of the Development of the Relative Value Units

1. Work Relative Value Units

2. Practice Expense and Malpractice Expense Relative Value Units

II. Specific Proposals for Calendar Year 1996 and Responses to

Public Comments

A. Budget-Neutrality Adjustments for Relative Value Units

B. Bundled Services

1. Hydration Therapy and Chemotherapy

2. Evaluation of Psychiatric Records and Reports and Family

Counseling Services

3. Fitting of Spectacles

C. X-Rays and Electrocardiograms Taken in the Emergency Room

D. Extension of Site-of-Service Payment Differential to Services

in Ambulatory Surgical Centers

E. Services of Teaching Physicians

1. General Background

2. Payment for Physician Services Furnished in Teaching Settings

3. Payments for Supervising Physicians in Teaching Settings and

for Residents in Certain Settings

4. Public Comments on the Teaching Physician Proposal in the

Proposed Rule and Our Responses

F. Unspecified Physical and Occupational Therapy Services (HCFA

Common Procedure Coding System Codes M0005 Through M0008 and H5300)

G. Transportation in Connection With Furnishing Diagnostic Tests

H. Maxillofacial Prosthetic Services

I. Coverage of Mammography Services

III. Anesthesia Issues

A. Modifier Units for Anesthesia Services

B. Issue for Change in Calendar Year 1998--Two Anesthesia

Providers Involved in One Procedure

IV. Refinement of Relative Value Units for Calendar Year 1996 and

Responses to Public Comments on Interim Relative Value Units for

1995

A. Summary of Issues Discussed Related to the Adjustment of

Relative Value Units

B. Process for Establishing Work Relative Value Units for the

1996 Fee Schedule

1. Work Relative Value Unit Refinements of Interim and Related

Relative Value Units

2. Establishment of Interim Work Relative Value Units for New

and Revised Codes for 1996

V. Issues for Discussion

A. Five-Year Refinement of Relative Value Units

B. Resource-Based Practice Expense Relative Value Units

C. Case Management in a Fee-for-Service System

VI. Provisions of the Final Rule

VII. Collection of Information Requirements

VIII.Response to Comments

IX. Regulatory Impact Analysis

A. Regulatory Flexibility Act

B. Budget-Neutrality Adjustments

C. Bundled Services

1. Hydration Therapy and Chemotherapy

2. Evaluation of Psychiatric Records and Reports and Family

Counseling Services

3. Fitting of Spectacles

D. X-Rays and Electrocardiograms Taken in the Emergency Room

E. Extension of Site-of-Service Payment Differential to Services

in Ambulatory Surgical Centers

F. Services of Teaching Physicians

G. Unspecified Physical and Occupational Therapy Services (HCFA

Common Procedure Coding System Codes M0005 Through M0008 and H5300)

H. Transportation in Connection With Furnishing Diagnostic Tests

I. Maxillofacial Prosthetic Services

J. Coverage of Mammography Services

K. Two Anesthesia Providers Involved in One Procedure

L. Rural Hospital Impact Statement

Text of the Final Regulations

Addenda

Addendum A--Explanation and Use of Addenda B through E

Addendum B--1996 Relative Value Units and Related Information Used

in Determining Medicare Payments for 1996

Addendum C--Codes with Interim Relative Value Units

Addendum D--1996 Geographic Practice Cost Indices by Medicare

Carrier and Locality

Addendum E--Procedure Codes Subject to the Site-of-Service

Differential

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:

ASC Ambulatory surgical center

CF Conversion factor

CFR Code of Federal Regulations

CPT [Physicians'] Current Procedural Terminology [4th Edition, 1994,

copyrighted by the American Medical Association] DEFRA Deficit

Reduction Act

EKG Electrocardiogram

GPCI Geographic Practice Cost Index

GME Graduate Medical Education

HCFA Health Care Financing Administration

HCPCS HCFA Common Procedure Coding System

OBRA Omnibus Budget Reconciliation Act

ORA Omnibus Reconciliation Act

RUC [American Medical Association Specialty Society] Relative [Value]

Update Committee

RVU Relative Value Unit

TEFRA Tax Equity and Fiscal Responsibility Act

I. Background

A. Legislative Requirements

The Medicare program was established in 1965 by the addition of

title XVIII to the Social Security Act (the Act). Since January 1,

1992, Medicare pays for physician services under section 1848 of the

Act, ``Payment for Physicians' Services.'' This section contains three

major elements: (1) A fee schedule for the payment of physician

services; (2) a Medicare volume performance standard for the rates of

increase in Medicare expenditures for physician 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(e)(1)(c) of the Act requires us to review and, if

necessary, adjust the geographic practice cost indices at least every 3

years. This section of the Act also requires us to phase in the

adjustment over 2 years and implement only one half of any

[[Page 63126]]

adjustment if more than 1 year has elapsed since the last geographic

practice cost index revision. The geographic practice cost indices were

first implemented in 1992 and were not reviewed until 1994. We

implemented one half of the adjustment in 1995 and will implement the

second half of the adjustment in 1996.

The Act requires that payments vary among fee schedule areas

according to geographic indices. In general, the fee schedule areas

that existed under the prior reasonable charge system were retained

under the fee schedule. A detailed discussion of fee schedule areas can

be found in the June 5, 1991 proposed rule (56 FR 25832) and in the

November 25, 1991 final rule (56 FR 59514). We are required by section

1848(e)(1)(A) of the Act to develop separate indices to measure

relative cost differences among fee schedule areas compared to the

national average for each of the three fee schedule components. While

requiring that the practice expense geographic practice cost indices

and malpractice geographic practice cost indices reflect the full

relative cost differences, the Act requires that the work indices

reflect only one-quarter of the relative cost differences compared to

the national average.

B. Published Changes to the Fee Schedule

We published a final rule on November 25, 1991, (56 FR 59502) to

implement section 1848 of the Act by establishing a fee schedule for

physician services furnished on or after January 1, 1992. In the

November 1991 final rule (56 FR 59511), we stated our intention to

update RVUs for new and revised codes in the American Medical

Association's Physicians' Current Procedural Terminology (CPT) through

an ``interim RVU'' process every year. The updates to the RVUs and fee

schedule policies follow:

November 25, 1992, as a final notice with comment period

on new and revised RVUs only (57 FR 55914).

December 2, 1993, as a final rule with comment period (58

FR 63626) announcing revised payment policies and RVUs for 1994. (We

solicited comments on new and revised RVUs only.)

December 8, 1994, as a final rule with comment period (59

FR 63410) to revise the geographic adjustment factor values, fee

schedule payment areas, and payment policies and RVUs for 1995. The

final rule also discussed the process for periodic review and

adjustment of RVUs not less frequently than every 5 years as required

by section 1848(c)(2)(B)(I) of the Act.

Prior Federal Register Documents

The information in this final rule with comment period updates

information in the following Federal Register documents:

June 5, 1991, proposed rule entitled ``Fee Schedule for

Physicians' Services'' (56 FR 25792).

November 25, 1991, final rule entitled ``Fee Schedule for

Physicians' Services'' (56 FR 59502).

September 15, 1992, correction notice for the 1992 fee

schedule (57 FR 42491).

November 25, 1992, final notice with comment period

entitled ``Fee Schedule for Physicians' Services for CY 1993'' (57 FR

55914).

June 7, 1993, correction notice for the 1993 fee schedule

(58 FR 31964).

July 14, 1993, proposed rule entitled ``Revisions to

Payment Policies Under the Physician Fee Schedule'' (58 FR 37994).

December 2, 1993, final rule with comment period entitled

``Revisions to Payment Policies and Adjustments to the Relative Value

Units under the Physician Fee Schedule for Calendar Year 1994'' (58 FR

63626). (There were two correction notices published for the 1994

physician fee schedule (July 15, 1994, 59 FR 36069) and (August 4,

1994, 59 FR 39828).)

June 24, 1994, proposed rule entitled ``Refinements to

Geographic Adjustment Factor Values and Other Policies Under the

Physician Fee Schedule'' (58 FR 32754).

December 8, 1994, final rule with comment period entitled

``Refinements to Geographic Adjustment Factor Values, Revisions to

Payment Policies, Adjustments to the Relative Value Units (RVUs) Under

the Physician Fee Schedule for Calendar Year 1995, and the 5-Year

Refinement of RVUs'' (59 FR 63410). (There were two correction notices

published for the 1995 physician fee schedule (January 3, 1995, 60 FR

46) and (July 18, 1995, 60 FR 36733).)

July 26, 1995, proposed rule entitled ``Revisions to

Payment Policies Under the Physician Fee Schedule for Calendar Year

1996 (60 FR 38400).

This final rule would affect the regulations set forth at 42 CFR

part 400, which consists of an introduction to, and definitions for,

the Medicare and Medicaid programs; part 405, which encompasses

regulations on Federal health insurance for the aged and disabled; part

410, which consists of regulations on supplementary medical insurance

benefits; part 414, which covers regulations on payment for Part B

medical and other health services; and new part 415, which contains

regulations on services of physicians in providers, supervising

physicians in teaching settings, and residents in certain settings. We

are making technical and conforming amendments to parts 411, 412, 413,

417, and 489.

C. Components of the Fee Schedule Payment Amounts

Under the formula set forth in section 1848(b)(1) of the Act, the

payment amount for each service paid for under the physician fee

schedule is the product of three factors: (1) A nationally uniform

relative value for the service; (2) a geographic adjustment factor for

each physician fee schedule area; and (3) a nationally uniform

conversion factor for the service. There are three conversion factors

(CFs)--one for surgical services, one for nonsurgical services, and one

for primary care services. The conversion factors convert the relative

values into payment amounts.

For each physician fee schedule service, there are three relative

values: (1) An RVU for physician work; (2) an RVU for practice expense;

and (3) an RVU for malpractice expense. For each of these components of

the fee schedule there is a geographic practice cost index for each fee

schedule area. The geographic practice cost indices reflect the

relative costs of practice expenses, malpractice insurance, and

physician work in an area compared to the national average.

The general formula for calculating the Medicare fee schedule

amount for a given service in a given fee schedule area can be

expressed as:

Payment=[(RVUwork x GPCIwork) + (RVUpractice expense

x GPCIpractice expense) + (RVUmalpractice x

GPCImalpractice)] x CF

The conversion factors for calendar year 1996 appear in Addendum A. The

RVUs for calendar year 1996 are in Addendum B. The GPCIs are in

Addendum D.

Section 1848(e) of the Act requires the Secretary to develop

geographic adjustment factors for all physician fee schedule areas. The

total geographic adjustment factor for a fee schedule area is equal to

a weighted average of the individual GPCIs for each of the three

components of the service. Thus, the geographic practice cost indices

reflect the relative costs of practice expenses, malpractice insurance,

and physician work in an area compared to the national average. In

accordance with the law, however, the geographic adjustment factor for

the physician's

[[Page 63127]]

work reflects one-quarter of the relative cost of physician's work

compared to the national average.

For the first year of the fee schedule, the law required a base-

year CF that was budget-neutral relative to 1991 estimated

expenditures. The Secretary is required to recommend to the Congress

updates to the CFs by April 15 of each year as part of the Medicare

volume performance standards and annual fee schedule update process.

The Congress may choose to enact the Secretary's recommendation, enact

another update amount, or not act at all. If the Congress does not act,

the annual fee schedule update is set according to a ``default''

mechanism in the law. Under this mechanism, the update will equal the

Medicare Economic Index adjusted by the amount actual expenditures for

the second previous fiscal year (FY) were greater or less than the

performance standard rate of increase for that FY. (The Medicare

Economic Index is a physician input price index, in which the annual

percent changes for the direct-labor price component are adjusted by an

annual percent change in a 10-year moving average index of labor

productivity in the nonfarm business sector.) The Medicare volume

performance standard for FY 1996 and the physician fee schedule update

for CY 1996 are published elsewhere in this Federal Register issue as a

final notice (BPD-828-FN).

D. Summary of the Development of the Relative Value Units

1. Work Relative Value Units

Approximately 7,500 codes represent services included in the

physician fee schedule. The work RVUs established for the

implementation of the fee schedule in January 1992 were developed with

extensive input from the physician community. The original work RVUs

for most codes were developed by a research team at the Harvard School

of Public Health in a cooperative agreement with us. In constructing

the vignettes for the original RVUs, Harvard worked with panels of

expert physicians and obtained input from physicians from numerous

specialties.

The RVUs for radiology services are based on the American College

of Radiology (ACR) relative value scale, which we integrated into the

overall physician fee schedule. The RVUs for anesthesia services are

based on RVUs from a uniform relative value guide. We established a

separate CF for anesthesia services because we continue to recognize

time as a factor in determining payment for these services.

Proposed RVUs for services were published in a proposed rule in the

Federal Register on June 5, 1991 (56 FR 25792). We responded to the

comments in the November 1991 final rule. Since many of the RVUs were

published for the first time in the final rule, we considered the RVUs

to be interim during the first year of the fee schedule and gave the

public 120 days to comment on all work RVUs. In response to the final

rule, we received comments on approximately 1,000 services. We

responded to those comments and listed the new RVUs in the November

1992 notice for the 1993 fee schedule for physicians' services. We

considered these RVUs to be final and did not request comments on them.

The November 1992 notice (57 FR 55914) also discussed the process

used to establish work RVUs for codes that were new or revised in 1993.

The RVUs for these codes, which were listed in Addendum C of the

November 1992 notice, were considered interim in 1993 and open to

comment through January 26, 1993.

We responded to comments received on RVUs listed in Addendum C of

the November 1992 notice (57 FR 56152) in the December 1993 final rule

(58 FR 63647) for the 1994 physician fee schedule. The December 1993

final rule discussed the process used to establish RVUs for codes that

were new or revised for 1994. The RVUs for these codes, which are

listed in Addendum C of the December 1993 final rule (58 FR 63842),

were considered interim in 1994 and open to comment through January 31,

1994. We proposed RVUs for some non-Medicare and carrier-priced codes

in our June 1994 proposed rule (59 FR 32760). Codes listed in Table 1

of the June 1994 proposed rule were open to comment. These comments, in

addition to comments on RVUs published as interim in the December 1993

final rule were addressed in the December 1994 final rule (59 FR

63432). In addition, the December 1994 final rule discussed the process

used to establish RVUs for codes that were new or revised for 1995.

Interim RVUs for new or revised procedure codes were open to comment.

Comments were also accepted on all RVUs considered under the 5-year

refinement process. The comment period closed on February 6, 1995.

2. Practice Expense and Malpractice Expense Relative Value Units

Section 1848(c)(2)(C) of the Act requires that the practice expense

and malpractice expense RVUs equal the product of the base allowed

charges and the practice expense and malpractice percentages for the

service. Base allowed charges are defined as the national average

allowed charges for the service furnished during 1991, as estimated

using the most recent data available. For most services, we used 1989

charge data ``aged'' to reflect the 1991 payment rules, since those

were the most recent data available for the 1992 fee schedule.

If charge data were unavailable or insufficient, we imputed the

practice expense and malpractice expense RVUs from the work RVUs. For

example, if a procedure has work RVUs of 6.00, and the specialty

practice cost percentages for the specialty furnishing the service is

60 percent work, 30 percent practice expense, and 10 percent

malpractice expense, then the total RVUs would be 10.00 (6.00/.60), the

practice expense RVUs would be 3.00 (10 x .30), and the malpractice

expense RVUs would be 1.00 (10 x .10).

II. Specific Proposals for Calendar Year 1996 and Responses to Public

Comments

In response to the publication of the July 26, 1995 proposed rule,

we received approximately 9,500 comments. We received comments from

individual physicians and health care workers and professional

associations and societies. The majority of the comments addressed two

proposals: (1) Revising Medicare payment for physician services in

teaching settings; and (2) paying for only one interpretation of an

electrocardiogram or an x-ray procedure furnished to an emergency room

patient except in unusual circumstances.

The proposed rule discussed policies that affect the number of RVUs

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

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

limitation on annual adjustments as contained in section 1848(c)(2)(B)

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 1996, including RVU changes

necessitated by the 1995 CPT coding changes. We discuss in detail the

effects of these changes in the Regulatory Impact Analysis (section

IX).

In the July 1995 proposed rule (60 FR 38416), we invited public

comments on a proposal to calculate the Medicare volume performance

standard for fiscal year 1996 and all future years based on estimates

of the average volume and intensity growth specific to each category of

physician service. We are

[[Page 63128]]

responding to the comments we received on this issue in the final

notice entitled ``Physician Fee Schedule Update for Calendar Year 1996

and Physician Volume Performance Standard Rates of Increase for Federal

Fiscal Year 1996 (BPD-828-FN) published elsewhere in this Federal

Register issue.

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

issues in sections II, III, and IV, for the most part, correspond to

the headings used in the July 1995 proposed rule. More detailed

background information for each issue can be found in the July 1995

proposed rule (60 FR 38400).

A. Budget-Neutrality Adjustments for Relative Value Units

We make annual adjustments to RVUs for the physician fee schedule

to reflect changes in CPT codes and changes in estimated physician

work. The statute requires that these revisions may not change

physician expenditures by more than $20 million compared to estimated

expenditures that would have occurred if the RVU adjustments had not

been made. In the past, we have made an adjustment across all RVUs in

the physician fee schedule to maintain this statutorily-mandated budget

neutrality.

We recognize that many other payers, including several Medicaid

programs, use the Medicare physician fee schedule. To reduce the number

of system changes required by the annual revisions to the physician fee

schedule, we proposed to apply these budget-neutrality adjustments to

the physician fee schedule conversion factors (CFs) rather than across

all RVUs.

The impact of this proposal on payment amounts would be minimal

(slight differences could be caused by rounding). This alternative

approach would be administratively simpler for Medicare and other

payers that base payment on the Medicare RVUs, including many State

Medicaid programs. In addition, this change would provide for

consistent RVUs from year to year (for those codes with no other

changes), thus making it easier to analyze payment and policy changes.

Comment: An overwhelming majority of commenters strongly supported

our decision to apply the annual budget-neutrality adjustments to the

physician fee schedule CFs rather than across all RVUs, beginning with

the publication of this final rule in the Federal Register; however, a

few commenters suggested that we apply this change retroactively by

converting all RVUs, which were altered for budget-neutrality reasons,

back to their original 1992 levels.

Response: For the sake of administrative simplicity, we will not

readjust RVUs from periods before the current period. In addition, we

believe that retroactively adjusting the RVUs would cause unnecessary

programming costs for those who electronically maintain systems

containing the RVU data.

Comment: A few commenters suggested the use of a separate budget-

neutrality factor rather than the adjustment of the physician fee

schedule CFs to achieve budget neutrality. They stated that private

payers who use the Medicare fee schedule CFs would then be able to

decide whether to apply the budget neutrality adjustment. This

particularly could be an issue for any adjustments needed for the five-

year review of all work RVUs, depending on the magnitude of the

adjustments.

Response: We prefer to adjust the existing CFs rather than add an

additional factor to adjust for budget neutrality. Because we

explicitly identify the magnitude of the annual budget-neutrality

adjustment, other payers can decide whether to apply the adjustment to

their CFs. However, we may reconsider this issue in the future for

issues such as the 5-year review of RVUs or congressional action.

Final Decision: Beginning with the publication of this final rule,

we will apply annual budget-neutrality adjustments to physician fee

schedule CFs rather than across all RVUs. However, if the Congress

explicitly sets a conversion factor at a fixed dollar amount for a

given year, we will consider establishing a separate budget-neutrality

adjustor.

B. Bundled Services

1. Hydration Therapy and Chemotherapy

We proposed not paying separately for hydration therapy infusion

(CPT codes 90780 and 90781) when billed on the same day as chemotherapy

infusion, CPT codes (96410, 96412, and 96414). Frequently, hydration

therapy and chemotherapy are performed at the same time. We believe

paying for both would be duplicative. We would continue to pay

separately for both the hydration therapy solution and the chemotherapy

drug. This reflects a policy change that is not explicitly addressed in

our regulations.

Comment: Commenters objected to our proposal stating that the

administration of saline for hydration therapy infusion at the same

time as chemotherapy infusion requires significant additional work and

supplies.

Response: We disagree. The saline and the chemotherapy drug are

usually administered through the same port or site. In some cases, the

solutions may even be mixed. We see no significant additional work or

expense involved in these cases, and we believe that paying separately

for hydration therapy infusion administered at the same time as

chemotherapy infusion represents duplicate payment.

Comment: A commenter agreed with our proposal stating that the same

access port or site is used for administering the chemotherapy drug and

the hydration therapy solution. The commenter requested clarification

as to whether the policy would apply to other drugs, such as

antiemetics and corticosteroids, which are often administered with

chemotherapy and, like hydration therapy, billed using CPT codes 90780

and 90781. The commenter suggested that a logical extension of our

proposal is to cover the administration of these drugs as well as

hydration therapy.

Response: We agree with this comment. CPT codes 90780 and 90781 for

the administration of saline or drugs such as antiemetics and

corticosteriods will not be paid separately when furnished at the same

time as CPT codes 96410, 96412, and 96414 for chemotherapy infusion.

However, we will pay separately for the drugs.

Comment: Most commenters agreed that for any given segment of time

it would be duplicative to pay for both chemotherapy infusion and

hydration therapy infusion. These commenters noted that the course of

treatment for many chemotherapy drugs, for example, cisplatin,

ifosmamide, and methotrexate, require hydration therapy or the infusion

of an antiemetic on the same day, but either before or after the

chemotherapy. The commenters believed that in these cases, the work is

not duplicative, and they should be allowed to bill for the infusion of

the saline or antiemetic.

Response: We agree. We are revising our proposal to allow payment

for hydration therapy or the infusion of an antiemetic or other

nonchemotherapy drug on the same day as chemotherapy infusion when the

nonchemotherapy drug is administered sequentially rather than at the

same time as the chemotherapy infusion.

Final Decision: We will not pay for the infusion of saline, an

antiemetic, or any other nonchemotherapy drug under CPT codes 90780 and

90781 when these drugs are administered at the same time as

chemotherapy infusion (CPT codes

[[Page 63129]]

96410, 96412, or 96414). However, we will pay for the infusion of

saline, antiemetics, or any other nonchemotherapy drug under CPT codes

90780 and 90781 when these drugs are administered on the same day but

sequentially to rather than at the same time as chemotherapy infusion,

under CPT codes 96410, 96412, and 96414. Physicians should use the new

modifier ``-GB'' to indicate when CPT codes 90780 and 90781 are

provided sequentially rather than contemporaneously with CPT codes

96410, 96412, and 96414.

This policy change is not explicitly addressed in our regulations.

2. Evaluation of Psychiatric Records and Reports and Family Counseling

Services

At present, we allow separate payment for CPT codes 90825 and

90887. However, we believe that the activities described by these codes

are generally performed as part of the prework and postwork of other

physician services. The RVUs for psychiatric services (CPT codes 90801

and 90835 through 90857) include the prework and postwork activities

described by CPT codes 90825 and 90887. Thus, continuing to allow

separate payment for these codes, in addition to payment for other

psychiatric services, results in duplicate payments and is inconsistent

with our policy for other services.

Counseling of the family is part of the work of all other

evaluation and management services. Medicare has a long-standing policy

of covering these services if they relate to the management of the

beneficiary's problems and not to the problems of the family member. We

believe it is appropriate to bundle covered family counseling

procedures into the other psychiatric codes so that our policy is

consistent with our policy on services furnished by other physician

specialties.

Therefore, we proposed to change the status indicator for CPT codes

90825 and 90887 to ``B'' to show that payment for these codes is

bundled into the payment for another service, and separate payment

would not be allowed. We proposed to implement this change in a budget-

neutral manner by redistributing the RVUs for CPT codes 90825 and 90887

across the following psychiatric codes: 90801, 90820, 90835, 90842

through 90847, and 90853 through 90857.

Comment: Several commenters questioned our claim that the work

involved in CPT codes 90825 and 90887 is a fundamental element of the

pre- and postwork of other physician or other psychiatric services,

stating that medical psychotherapy is a specific procedure, distinct

from evaluation and management, and that these procedures (CPT codes

90825 and 90887) are characteristically excluded from psychotherapy.

Some commenters believed this payment change would be inherently unfair

to providers who furnish services under CPT codes 90825 and 90887.

Response: In addressing the concern that CPT codes 90825 and 90887

are excluded from psychotherapy and represent distinct and different

services, we note that in the CPT chapter on Psychiatry, General

Clinical Psychiatric Diagnostic or Evaluative Interview Procedures, CPT

code 90801 (Psychiatric Interview) refers to both communication with

family or other sources, as well as the ordering and medical

interpretation of laboratory or other medical diagnostic studies.

Further, the definition includes the history and the exchange of

information with family members and other informants. Additionally, the

final report by Harvard researchers (``Refinement of the Development of

a Resource-Based Relative Value Scale for Psychiatrist Services;

National Institute of Mental Health Contract No. 278-87-0024'') defines

physician work as encompassing work while with the patient and work

before and after the service, defined as reviewing records as well as

communicating with the patient, the patient's family, and other

professionals. We believe these definitions clearly indicate that the

evaluation of other records and family counseling fall within the scope

of medical psychotherapy and, thus, do not represent distinct services.

Therefore, we believe it is appropriate to bundle payment for these

services.

Comment: Several commenters specifically addressed CPT code 90887.

One commenter agreed that the services encompassed by CPT code 90825

are usually performed as part of the pre- and postwork for other

physician services, but expressed concern this was not true for CPT

code 90887, which is typically the exclusive service being furnished.

Another commenter questioned the redistribution of the RVUs for CPT

code 90887. The commenter believed that if, as stated, family

counseling is part of the postwork of evaluation and management

services, the RVUs for this service should be distributed across all

evaluation and management codes, not just the psychiatric codes.

Response: Family counseling must be related to the patient. The

fact that this service occurs on different days or times does not

preclude it from being part of the pre- and postwork. Although we

recognize that the services described by CPT code 90887 may be provided

on different dates of service from when the patient received

psychiatric service, they are still considered part of the postwork

service associated with that code. We note, also, that the evaluation

and management services cannot be billed by clinical psychologists and,

thus, have been included in other service codes.

If the RVUs for CPT code 90887 were distributed across all

evaluation and management codes as well as the psychiatric codes for

this service, the impact would be negligible. That is, the amount to be

distributed is not of sufficient magnitude to have any noticeable

effect.

Comment: One commenter requested that we also consider changing the

status indicator for CPT code 90862 (Pharmacologic management) to ``B''

because, according to the commenter, pharmacological management is part

of evaluation and management services.

Response: Separate payment for pharmacological management is not

permitted on the same day as psychotherapy as this service is already

included in the codes for psychotherapy. To distinguish services to

Medicare beneficiaries for the sole purpose of drug management from

those that include some psychotherapy, HCFA developed HCPCS code M0064.

This code is defined as a brief office visit for the sole purpose of

monitoring or changing drug prescriptions used in the treatment of

mental, psychoneurotic, and personality disorders.

Comment: According to one commenter, since the original survey of

psychiatric work conducted by Harvard researchers, managed care has

increased. With the rise in managed care, there is a decrease in mental

health benefits. Therefore, the patients that psychiatrists treat,

especially in the fee-for-service setting, are much more complex. The

commenter believed this additional work is not currently included in

the RVUs for psychiatric services. In addition, this commenter has

found that psychiatrists are spending a greater amount of time

responding to review requests, developing treatment plans for managed

care, managing and supervising nonphysician mental health providers,

and documenting and coding work.

Response: Section 1848(c)(2)(B) of the Act requires that all RVUs

be reviewed not less frequently than every 5 years to account for

changes in medical practice, coding changes, new data, and new

procedures. Thus, the issues of psychiatric work time, as well as the

[[Page 63130]]

issue of psychiatric services delivered in a managed care setting, will

be addressed as part of the 5-year review process.

Final Decision: We will bundle the payment for CPT codes 90825 and

90887 into the payment for other psychiatric services. Therefore,

separate payment for CPT codes 90825 and 90887 is not allowed.

This policy change is not explicitly addressed in our regulations.

3. Fitting of Spectacles

We proposed to cease paying separately for the fitting of glasses

and low vision systems. The payment for the fitting of spectacles is

included in the payment for the spectacles in the same way that payment

for other prosthetic fitting services is included in the payment for

the prosthetic device.

We proposed to assign a ``B'' status indicator to CPT codes 92352,

92353, 92354, 92355, 92358, and 92371 to indicate that the services are

covered under Medicare but that payment for them is bundled into the

payment for the spectacles. We proposed to implement this in a budget-

neutral manner by redistributing the current RVUs for these services

across all RVUs.

This reflects a policy change that is not explicitly addressed in

our regulations.

Comment: A commenter believed that these fitting services should

continue to be paid separately because of the time and expertise

required to fit glasses for aphakic patients and low vision aids.

Response: The fitting of spectacles is covered under section

1861(s)(8) of the Act. Services under this section are not included in

the definition of physician services as defined in section 1848(j)(3)

of the Act and are not payable under the physician fee schedule.

Although we have been allowing payment, the fitting of spectacles is

included in the payment for the spectacles in the same way that payment

for other prosthetic fitting services are included in the payment for

the device. Under the current system, duplicate payment has been made

for the aforementioned procedure codes.

Final Decision: We will no longer pay separately for CPT codes

92352, 92353, 92354, 92355, 92358, and 92371. Beginning January 1,

1996, these codes will be assigned a ``B'' status indicator to indicate

that the services are covered under Medicare, but payment for them is

bundled into the payment for the spectacles.

This policy change is not explicitly addressed in our regulations.

C. X-Rays and Electrocardiograms Taken in the Emergency Room

We proposed to pay for the x-ray and/or electrocardiogram (EKG)

interpretation that contributes to the diagnosis or treatment of the

patient in the emergency room. We will pay for only one x-ray and/or

EKG interpretation except under unusual circumstances.

Comment: The comments from radiologists opposed every aspect of the

proposal. The primary point raised by virtually all of these commenters

was that, by training and experience, they were more qualified than

emergency physicians or other nonradiologists to furnish these

interpretations. Some radiologists commented that we should require

board certification as a requirement to bill for the interpretation of

x-rays.

Response: In paying for physicians' services under the Act, we are

charged with determining the following:

Is the service covered under Medicare?

Is the service reasonable and necessary for the individual

beneficiary?

Is the physician licensed to perform the service in the

State in which it is furnished?

In the case of a licensed physician who has furnished a covered

service (that is not payable through another code) to a Medicare

beneficiary in an emergency room, it is not readily apparent to us upon

what basis the claim can be denied. There is no portion of the Act upon

which to base a decision that only board-certified radiologists can

furnish x-ray interpretations or board-certified cardiologists can

furnish EKG interpretations. (Where the Congress has determined that

there should be special qualifications in order to furnish a service,

as in the case of mammography, a provision was made in the statute.)

Our proposed policy for x-ray and EKG interpretation is consistent with

how we generally treat other physician services.

Comment: Emergency room physicians supported the direction of the

proposal but requested clarification of the proposal including its

effect on payments for second interpretations. Many commended us for

proposing to change the existing policy but criticized the agency for

not going far enough. Several emergency physicians commented that it

was unethical for us to withhold compensation from physicians who make

life-saving decisions every day based on x-ray and EKG interpretations.

Response: Our proposal addressed situations in which both the

emergency physician and the radiologist/cardiologist billed for the

same interpretation. It is that situation in which a determination

needs to be made of which interpretation contributed to the diagnosis

and treatment of the individual patient. If an emergency physician does

not bill for the interpretation, there would be no change from existing

policy. We would like to stress that if the only bill received is from

the radiologist or cardiologist, it is paid on the same basis as

current claims.

Comment: We received relatively few comments from physicians and

other entities specializing in cardiology procedures. Their comments

focused on the cardiologists' greater qualifications to interpret EKGs

based on their training and experience.

Response: The discussion above about the qualifications of the

interpreting radiologist would also apply here. The situation with EKGs

is somewhat different than with x-rays because section 13514 of OBRA

1993, Public Law 103-66, enacted August 10, 1993, requires us to make

separate payment for EKG interpretations and to exclude the RVUs for

EKG interpretations from the RVUs for visits and consultations, making

the EKG portion of the current policy as set forth in section 2020G of

the Medicare Carriers Manual obsolete.

Comment: We proposed that the radiologist or cardiologist should be

paid for the interpretation when it is performed contemporaneously with

the diagnosis and treatment of the emergency room patient. This

standard would be met if an interpretation were initially conveyed to

the treating physician verbally. Nearly all commenters seemed to be

troubled by the use of the term ``contemporaneous'' and requested

clarification of the term. Some radiologists indicated that their

interpretation is furnished contemporaneously if it is provided timely,

which commenters variously defined as 12-24 hours. Other radiologists

indicated that there are teleradiology hook-ups to radiologists, homes

which should satisfy the need for contemporaneous interpretations.

Several emergency room specialists indicated that the circumstances

under which a radiologist or cardiologist furnishes a contemporaneous

interpretation as discussed in the proposal should be clarified. They

expressed concern that the provision of a verbal interpretation by the

specialist to the emergency room physician could be used to circumvent

the stated intention to pay for the interpretation used in the

diagnosis and treatment of the beneficiary.

[[Page 63131]]

Response: When we used the term contemporaneous, we meant that the

interpretation of the procedure by the radiologist or cardiologist and

the diagnosis and treatment of the beneficiary by the physician in the

emergency room occur at the same time, as opposed to an interpretation

performed hours or days after the beneficiary is sent home. While the

argument that the carrier should pay for any interpretation furnished

timely sounds reasonable, it does not reflect the realities of claims

processing. It would be impossible for a reviewer to make an assessment

in every individual case as to whether the second interpretation was

furnished ``timely.'' In situations in which both physicians bill for

the interpretation, the question to be resolved is whether the

radiologist or cardiologist performed the interpretation in time to be

used in the diagnosis and treatment of the patient. As set forth in the

proposal, we believe that in any case in which the radiologist or

cardiologist furnishes the interpretation (a written interpretation or

a verbal interpretation that will be written later), the emergency room

physician should not bill for the interpretation, and the carrier

should pay for the claim submitted by the radiologist or cardiologist.

The comments we received from the emergency room physicians did not

seem to be requesting payment for interpretations furnished under these

conditions. We agree that an interpretation furnished via teleradiology

meets the requirement when the interpretation is used in the diagnosis

and treatment of the patient.

Comment: Several commenters indicated that emergency room

physicians without formal training in interpreting computerized axial

tomography (CT) scans will miss subtle changes which could lead to

permanent injuries to patients. They also stated that there were

problems with the application of the proposal to other diagnostic

procedures such as mammography, ultrasound, and upper and lower

gastrointestinal series.

Response: This proposal applies only to x-ray procedures and EKGs

furnished in emergency rooms.

Comment: Many radiologists indicated that the proposal will

increase the Medicare program costs ``tremendously'' because of the

potential for self-referral abuse. The commenters believed that

physicians who see patients in the emergency room will order

unnecessary tests if they know that they will be able to bill for the

interpretations of these tests.

Response: We would be interested in reviewing any evidence the

radiologists have that emergency room physicians order additional tests

that are not medically necessary when they are permitted to bill for x-

ray and EKG interpretations. We are also interested in any suggestions

we might offer to the carriers on how to identify such unnecessary

testing. We will address any self referral prohibitions within our

Stark regulations.

Comment: Several radiologists pointed out that a proper

interpretation does not really mean a ``check'' or a few words on the

chart, but requires a full written report.

Response: We agree completely. The requirement for a written report

of the interpretation of an x-ray or EKG is an integral part of our

proposal. We would point out that less extensive ``reviews'' by

emergency room physicians are not separately billable because payment

for such reviews is included in the payment for the evaluation and

management services rendered in an emergency room.

Comment: Many radiologists commented that, while some emergency

medicine specialists are very proficient at reading trauma films, they

lack the necessary training to identify subtle changes. For example, a

patient is brought into the emergency room with chest trauma. The

commenter indicated that the emergency physician would identify the

broken ribs but miss a lung tumor. Several other commenters were

concerned that a missed early diagnosis could result from an

interpretation performed by a nonradiologist emergency room physician

while a radiologist would review the total film rather than just the

area of clinical concern.

Response: It seems to us that the major purpose of the emergency

room x-ray in this instance would be to diagnose the degree of chest

trauma. However, in this circumstance, if the emergency physician

billed for the interpretation and a radiologist made an additional

finding of a lung tumor, it would be appropriate for the carrier to pay

for both interpretations.

Comment: One radiologist indicated that all too often the emergency

room preliminary interpretation is made by a nurse or medical student

and the films are never reviewed by a staff emergency room physician.

Response: It is difficult to see how such an observation relates to

our proposal. A physician could not provide a written interpretation of

an x-ray unless he or she personally viewed it. A written report of

interpretation is an integral part of our proposal.

Comment: Many commenters objected to the hospital playing a role in

determining which physician should bill for the interpretation of these

procedures. The following comments were received:

Hospitals are not capable of making such determinations.

It would be in the financial interest of the hospital for

the interpretation to be paid to those physicians who order the most

tests.

The medical staff is usually a legally separate and

independent body from the hospital, and hospitals have no authority to

become involved in such matters.

Such decisions should be left to peer review.

Hospitals should be encouraged to ensure that the billed

interpretation is the one upon which treatment is based.

The concept of a hospital making a policy decision as to

which physician should get paid for interpretations will be a

regulatory nightmare and the time and money carriers will have to

expend to monitor the situations will be enormous. However, one

emergency room physician commented that he hoped the proposal would

encourage radiologists and cardiologists to furnish these

interpretations in a more timely fashion.

Response: In developing our proposal, we considered requiring

hospitals to notify their local carrier of the identity of the

physician who would be performing these interpretations for their

patients. We determined that such a requirement would have had an

effect as indicated by one of the commenters and that our authority to

impose such a requirement was questionable. However, under our

proposal, we suggested that hospitals act to ensure that only one

interpretation is billed. (Hospitals could do this now; we are not

mandating an additional duty.) If a carrier receives only one claim,

there will be no problem. The problem will arise when hospitals do not

take action and the carrier receives two claims for each interpretation

and then must make a determination about which claim to pay. It seems

reasonable to us for hospitals to work with their medical staffs to

establish guidelines for the billing of x-ray and EKG interpretations

for emergency room patients.

Comment: Some commenters expressed concern about the effect of the

proposal on small, rural hospitals in which there are an insufficient

number of radiologists to cover the emergency room 24 hours a day. It

was pointed out that many of these hospitals either go without any

service at all and ship films to radiologists for interpretation or

[[Page 63132]]

receive direct radiologist's services on an infrequent basis each week.

One commenter indicated that consideration should be given to the size

of the hospital, the definition of what constitutes an emergency room,

and the availability of radiologic services.

Response: Since our proposal is limited to emergency room services,

if a hospital does not have an emergency room and no claims with a

place of service indicator of emergency room are received, there does

not appear to be a problem. Likewise, if there is an emergency room in

a hospital but no emergency room physician bills for an interpretation

of the test, there is also no problem. We indicated in our proposal

that if a carrier receives only one claim for a reasonable and

necessary interpretation of an x-ray or EKG, it would pay the claim,

generally without further development.

Comment: One commenter indicated that the proposal was

inappropriate because emergency room physicians are thankful that

radiologists will interpret the overnight x-rays the next morning in

view of the harried circumstances under which services are furnished in

the emergency room.

Response: Our proposal does not require emergency room physicians

to bill for these interpretations. If the emergency room physicians do

not bill for these interpretations, the radiologist and cardiologist

may continue to be paid for the interpretations. Our proposal has no

effect on situations in which the emergency physician does not wish to

bill for the interpretation.

Comment: A carrier medical director expressed concern that it will

be impossible to determine from a claim whether the emergency physician

has submitted written documentation of the x-ray or EKG interpretation

for the medical record. The carrier medical director went on to

indicate that encouraging hospitals to exercise their authority to

ensure that only one claim for interpretation is received will not work

and recommended that the current policy should be maintained.

Response: By submitting a claim for the interpretation of an x-ray

or EKG, the emergency room physician is stating that he or she has

prepared a written interpretation of the procedure for inclusion in the

patient's medical record. We do not agree that the current manual

policy works well since it became partially obsolete by the physician

fee schedule.

Comment: Another carrier medical director indicated that the

requirement for a written report be strengthened to indicate that

Medicare is requiring a separately written report which meets the

hospital's requirement for an official report.

Response: We agree and will include such a written report

requirement in the revised manual instructions.

Comment: Some emergency room physicians commented that they should

be paid for the x-ray and EKG interpretation in almost every case since

it is they who furnish the real-time service.

Response: We believe that our proposal is a better approach. There

is no question that the cardiologist or radiologist should be paid for

the interpretation when that physician furnishes the service in time to

be used in the diagnosis and treatment of the patient. Further, we

believe that there are physicians who work in emergency rooms who

prefer to defer to a cardiologist or radiologist for the final

interpretation and do not wish to prepare written reports or bill for

interpretations. However, our proposal provides for payment when the

emergency room physician provides a written interpretation that

contributed to the diagnosis and treatment of the patient.

Comment: One commenter indicated that, in their community hospital,

the radiologist is summoned at the time of the initial diagnosis and

treatment for the most serious cases, whereas, for less urgent

examinations, the formal interpretation is made the following morning.

The commenter went on to say that the issue should be the

responsiveness of the radiologist when his or her input will affect

care, and that having x-rays read by nonradiologists is moving in the

wrong direction.

Response: As indicated previously, interpretations by radiologists

used for the diagnosis and treatment of the patient would be payable.

Comment: A few commenters suggested that the appropriate approach

is to split the fee for the interpretation between the radiologist and

the ER physician.

Response: We do not believe that this would be a workable approach

since the carrier would not know when or if it would receive the second

claim.

Comment: Radiologists made the following additional comments:

The majority of carrier medical directors do not support

the proposal.

The changes do not reflect the findings of the July 1993

report of the Department of Health and Human Services, Office of

Inspector General, entitled ``Medicare's Reimbursement for

Interpretations of Hospital Emergency Room X-Rays.''

Response: We did present the proposal to a committee of carrier

medical directors during a monthly conference call on operational

issues and the views were mixed. The major impression we drew from

their comments was that they were most concerned with enforcement

issues. We will continue to seek the guidance of the carrier medical

directors and other interested parties in developing instructions to

implement this policy.

The recommendation of the OIG report was to pay for

reinterpretations of x-rays only when attending physicians specifically

request a second physician's interpretation in order to render

appropriate medical care before the patient is discharged. Any other

reinterpretation of the attending physician's original interpretation

should be treated and reimbursed as part of the hospital's quality

assurance program.

Using 1990 data, the OIG projected savings of $20.4 million based

on a cessation on payments for radiologists' interpretations of x-rays

if its recommendation were implemented. We believe that the OIG

recommendation would result in no payment for interpretations of these

services in many cases; therefore, we reject that portion of the

recommendation. In other words, we believe that one physician should be

paid for the interpretation of an x-ray.

Comment: One commenter suggested that the solution to this problem

be developed through the CPT system. The commenter suggested that we

propose separate codes for the emergent reading of the test and a

second, different code for the over-read. This commenter and some

others indicated that payment for these interpretations be evenly

divided between the two codes.

Response: The commenter may want to refer this proposal to the CPT

Editorial Panel.

Final Decision: We are adopting the policy as set forth in the

proposed rule for services furnished on or after January 1, 1996.

Listed below are the elements of our policy.

The carrier will pay separately for only one

interpretation of an EKG or x-ray procedure furnished to an emergency

room patient. However, there is a provision for payment of second

interpretation under unusual circumstances such as a questionable

finding for which the physician performing the initial interpretation

believes another physician's expertise is needed.

The professional component of a diagnostic procedure

furnished to a beneficiary in a hospital includes an interpretation and

written report for

[[Page 63133]]

inclusion in the beneficiary's medical record maintained by the

hospital. We have placed this requirement in the radiology section of

the regulations on services of physicians in providers at

Sec. 405.554(a). (Under the recodification, this section becomes

415.120(a)).

We distinguish between an ``interpretation and report'' of

an x-ray or an EKG procedure and a ``review'' of the procedure. An

interpretation and report of the procedure is separately payable by the

carrier. A review of the findings of these procedures, without a

written report, does not meet the conditions for separate payment of

the service since the review is already included in the emergency room

visit payment.

In the case of multiple bills for the same interpretation

and report, we will instruct the carriers to adopt the following

procedures:

+ Cease consideration of physician specialty in deciding which

interpretation and report to pay regardless of when the service is

performed.

+ Pay for the interpretation and report that directly contributed

to the diagnosis and treatment of the individual patient.

+ Pay for the interpretation billed by the cardiologist or

radiologist if the interpretation of the procedure is performed at the

same time as the diagnosis and treatment of the beneficiary. (This

interpretation may be a verbal report conveyed to the treating

physician that will be written in a report at a later time.)

We will minimize the carrier's need to make decisions

about which claim to pay when multiple claims for the interpretation

and report of the same procedure are received by--

+ Encouraging hospitals to work with their medical staffs to ensure

that only one claim per interpretation is submitted;

+ Advising hospitals that if they allow a physician to perform and

bill for a medically necessary service (the interpretation and report)

in an emergency room and permit another physician to perform and bill

for the same service, the Medicare carrier will not pay two claims;

+ Advising hospitals that the Medicare carrier may determine that

the hospital's ``official interpretation'' is for quality control and

liability purposes only and is a service to the hospital rather than to

an individual beneficiary; and

+ Advising hospitals that Medicare fiscal intermediaries consider

costs incurred for quality control activities in determining payments

to hospitals.

When the Medicare carrier receives only one claim for an

interpretation and the procedure is reasonable and necessary, the

carrier will pay the claim. We will presume that the one service billed

was a service to the individual beneficiary and not a quality control

measure.

Manual instructions to the carriers will be issued as soon as

possible.

This policy change is not explicitly addressed in our regulations.

D. Extension of Site-of-Service Payment Differential to Services in

Ambulatory Surgical Centers

We proposed extending the site-of-service payment differential to

services on the ambulatory surgical center (ASC) covered list of

procedures that are predominantly performed in an office setting. We

see no reason for exempting these procedures from the site-of-service

payment differential. The practice expense RVUs duplicate many of the

overhead expenses included in the ASC facility and hospital payment

rates. As such, when a service is provided in an ASC or a hospital, the

physician does not bear the same level of practice costs as when the

same service is furnished in the office. Therefore, in Sec. 414.32

(``Determining payments for certain physician services furnished in

facility settings''), we proposed to modify in paragraph (d)

(``Services excluded from the reduction'') the subordinate paragraph

(d)(2), which would have the effect of applying the site-of-service

payment differential to ASC services. The payment differential does not

apply to procedures performed in an ASC that are not on the ASC list

because no facility payment is made.

Comment: Many commenters stated that the Act provides that

procedures included on the ASC list, by definition, are not office-

based procedures. Commenters indicated that we had concluded in

previously published regulations on ASCs that certain procedures, such

as cystoscopies, prostate biopsies, and skin lesion excisions, are not

office-based procedures.

Response: Historically, the ASC list included only procedures that

were performed less than half of the time in an office setting.

Consequently, the ASC list and the site-of-service payment differential

lists were mutually exclusive. Over time, many procedures shifted from

being performed predominately in ASCs to being performed predominately

in offices. However, in many cases the procedures were retained on the

ASC list because we were persuaded by arguments that while the

procedure may usually be done in an office, there were circumstances

justifying using an ASC. Therefore, the two lists are no longer

mutually exclusive. Retention of certain procedures on the ASC list

does not imply that they cannot appropriately be performed in an

office. In fact, the only procedures proposed for addition to the site-

of-service differential payment list are those that are performed in an

office setting the majority of the time.

Comment: Several commenters questioned the accuracy of data or

indicated that they could not fully evaluate the proposals because we

did not publish data on which the site-of-service list is based. Some

stated we should use clinically-based criteria instead of purely

objective, arithmetic data.

Many commenters indicated that many of the procedures added to the

site-of-service differential list were inappropriate and unlikely to be

office-based procedures because they are extraordinarily complicated

procedures, require anesthesia or sophisticated equipment, or need to

be evaluated on a case by case basis. Several commenters believed the

list to be arbitrary and unfair. Others indicated that physicians

should not be punished for selecting the medically appropriate site for

certain procedures on the list. One commenter agreed that we should

encourage physicians to perform procedures in an office when it is safe

and effective.

Another commenter stated that we should pay urologists for supplies

and a small facility fee to shift procedures to the less costly office

setting.

Some commenters stated that because nasal/sinus endoscopy codes

were added to the ASC list effective January 1, 1994 the site-of-

service data are likely to be skewed toward the physician's office

setting. Other commenters stated the CPT description for breast biopsy

(CPT code 19100) was recently changed to include only core needle

aspiration while fine needle aspiration is now reported using code CPT

code 88170. One commenter agreed that breast biopsy should be on the

list. Other commenters argued that the data do not distinguish between

techniques employed. Many commenters indicated that the policy does not

account for gender differences. For example, cystoscopies performed on

males are more difficult and painful and are inappropriate for an

office setting.

Response: According to our data, the procedures on the site-of-

service payment differential list are performed in a physician's office

more than 50 percent of the time. Inclusion of procedures on the list

is not intended to

[[Page 63134]]

reflect a judgment regarding the appropriateness of the site where the

service is performed or to encourage performance of procedures in the

less costly office setting or to create a financial disincentive for

the physician to select the most appropriate site. Inclusion on this

list merely recognizes where the service is being furnished the

majority of the time. We recognize that although the majority of the

procedures we proposed to add to the site-of-service list are performed

in a physician's office, the ASC setting is sometimes appropriate. That

is the reason they remain on the ASC list. It is not the purpose of

this policy to dictate where a physician should perform the service.

The policy reflects the lower practice costs incurred by physicians

when these services are performed in an ASC or a hospital.

Comment: One commenter objected to including urodynamic evaluation

CPT codes 51725, 51726, and 51772 on the site-of-service payment

differential list. Another commenter provided information demonstrating

that 21 other proposed procedures should not be on the list because

more recent data indicate that the procedures are not performed in the

office more than 50 percent of the time.

Response: We agree with the comment that urodynamic evaluation

codes do not belong on the list and have removed CPT codes 51725,

51726, 51772, and 51785 from the list. We also agree with the comment

that some of the proposed procedures are not performed in the office

setting more than 50 percent of the time based on the most current data

available. Therefore, we have removed the following CPT codes from the

list: 13150, 14020, 14060, 15740, 21208, 21440, 23066, 26645, 28030,

28043, 28092, 28261, 40510, 41805, 42408, 46220, 46610, 63600, 64420,

65270, and 67921.

Comment: Some commenters stated that the site-of-service payment

differential should not apply to services furnished in an ASC for which

no facility payment is made. Another commenter said that many ASCs are

considered extensions of a physician's office, not a free-standing

facility, and physicians are responsible for ASC overhead.

Response: We agree with these comments. Therefore, we have

clarified the proposal to state that when a service that is not on the

ASC list is performed in an ASC, the site-of-service payment

differential does not apply. In this case, we view the ASC as an

extension of the physician's office and, for purposes of this

provision, view this as an office service.

Comment: Some commenters said that there is no difference in

practice costs between the office setting and the ASC. In some cases,

costs may be higher in the ASC because of more complicated cases, the

delivery of anesthesia services, and physician travel costs. Other

commenters said it is unjustified to conclude that there is no office

overhead for physicians performing procedures in another setting.

Some commenters recommended that we make no changes to the site-of-

service payment differential before the implementation of resource-

based practice expense RVUs in 1998. One commenter requested that we

suspend the site-of-service payment differential altogether. Others

recommended increasing practice expense payments for procedures

performed in the office to discourage physicians from using hospital

ASCs. Other commenters said we should exempt codes that are reduced by

the interim practice expense reduction of OBRA 1993.

Response: The site-of-service payment differential is a long

established policy that aims to avoid duplicate payments for overhead

while, at the same time, recognizes that some office overhead is

incurred when physicians perform procedures outside the office setting.

For this reason, the practice expense RVUs are reduced by only 50

percent. While we will implement resource-based practice expense RVUs

in 1998, we see no reason to postpone applying the payment differential

to ASCs until then. The site-of-service policy currently applies to

both inpatient and outpatient hospital settings. We see no

justification for continuing to exempt services provided in ASCs.

Section 13513 of OBRA 1993 provided for reductions in practice

expense RVUs for services for which practice expense RVUs exceeded 128

percent of the work RVUs and that are performed less than 75 percent of

the time in an office setting. This reduction was based on the

Congress' determination that practice expense RVUs were too high for

some procedures. This reduction is independent of the long standing

site-of-service payment differential.

Comment: Many commenters stated that the proposal would result in

reduced quality of care. Other commenters said it did not encourage

placement of patients in the most appropriate and cost-effective

setting to address the patient's medical needs. Several commenters

indicated that since we have determined that the proposed procedures

are appropriate for ASCs based on medical review and patient safety

outcome data, it would be inconsistent to apply the site-of-service

payment differential.

Some commenters indicated that many of the proposed procedures

cannot be performed safely in an office. They indicated that offices

are not certified to meet the same standards of care or health care

outcomes as ASCs, which are generally safer places to perform

procedures. They believed the proposal creates a disincentive for

physicians to use ASCs even when it is in the patient's best interest

to do so. Other commenters said procedures are performed in an ASC

because of patient choice or for a patient's safety and comfort. They

believed that paying less for the most complicated cases will

discourage doctors from doing such cases, thereby creating serious

access problems for patients.

Response: We disagree that application of the site-of-service

payment differential will penalize a physician who has valid clinical

reasons for performing a procedure in an ASC. Rather, we believe the

payment differential will appropriately reflect that the physician

incurs fewer costs when furnishing service in an ASC. We believe that

physicians consider the welfare of the beneficiary in selecting the

appropriate site to perform the service. We do not believe that

physicians will make inappropriate decisions regarding the health and

well being of their patients because of a reduction in their payment.

Comment: Many commenters said that the proposal will encourage

physicians to buy costly equipment for their offices, such as that

required for urologic and arthroscopic procedures, which most do not

have.

Response: We believe the payment differential is incentive neutral

with regard to selecting a practice site. That is, we do not believe

that the payment differential will induce physicians to purchase

additional equipment to enable them to furnish services in the office.

Comment: One commenter stated that a large number of procedures

proposed for addition to the site-of-service list were originally

exempt from the list because they were performed less than 50 percent

of the time in a physician's office. Therefore, the practice expense

values already reflect the costs of furnishing the procedures outside

the office setting.

Response: Physicians shift the place of service for procedures from

the hospital setting to the office setting for various reasons. Two

reasons are (1) that advances in technology, technique, or other

factors make it now feasible to do many services in the office setting

that

[[Page 63135]]

historically were furnished in a hospital setting; and (2) physicians

believe that it is cost-effective and efficient to shift the place of

service. We believe that the direct costs of providing the service

(staff, supplies, equipment, and space) are reflected in the practice

expense relative values based on the predominant place of service.

Therefore, we believe it is appropriate to apply the site-of-service

reduction to these services when they are performed in a setting where

we make a payment for the direct costs of providing the service; for

example, hospitals and ASCs. However, this issue will be further

examined as part of the development of practice expense RVUs for 1998.

Comment: Several commenters misunderstood the proposal. Some

implied that we were proposing a reduction in the ASC facility payment

rate or reducing payments for office based procedures. One objected to

applying the site-of-service payment differential to the hospital

setting. One commenter was not convinced the proposal will save money.

Several comments concerned issues not covered under this proposal,

for example, objections to removing certain codes from the ASC approved

list and requests that particular codes be added or deleted from the

ASC list. Another commenter suggested that new criteria are needed for

procedures on the ASC list. Another thought we were proposing removing

the codes from the ASC list.

Response: The proposal does not affect ASC facility payment rates

or physician payments for procedures performed in an office setting.

The site-of-service payment differential already applies to the

hospital outpatient setting. The proposal is budget neutral and is not

intended to reduce Medicare payments. The proposal does not revise

procedures on the approved ASC list.

Final Decision: We will extend the site-of-service payment

differential to office-based services on the ASC list if those services

are performed in an ASC or in a hospital setting. However, when a

service that is not on the ASC list is performed in an ASC, the site-

of-service payment differential will not apply. The site-of-service

list for 1996 appears in Addendum E of this final rule. All additions

to the list are identified by an asterisk.

E. Services of Teaching Physicians

1. General Background

Our July 26, 1995 proposed rule (60 FR 38405) discussed Medicare

payment for those services furnished under graduate medical education

(GME) programs that are not payable through the mechanisms established

for direct GME costs by section 1886(h) of the Act. Section 1886(h)

addresses Medicare payments to hospitals and hospital-based providers

for the costs of approved GME programs in medicine, osteopathy,

dentistry, and podiatry. Those costs include residents' salaries and

fringe benefits, physician compensation costs for GME program

activities that are not payable on a fee schedule basis, and other GME

program costs.

Medicare intermediary expenditures under section 1886(h) of the Act

for fiscal year 1996 are estimated to be approximately $1.9 billion. In

addition, under section 1886(d)(5)(B) of the Act, Medicare makes

additional payments to teaching hospitals under the prospective payment

system for the higher indirect operating costs hospitals incur by

having GME programs. (These are costs other than direct GME costs.)

Medicare indirect GME payments for fiscal year 1996 are estimated to be

approximately $4.9 billion. Medicare also supports GME programs in

teaching hospitals through billings for the services of attending

physicians who involve residents in the care of their patients. The

amount of Medicare expenditures for these services is not known since

attending physicians are not required to distinguish between services

they personally furnish and those they furnish as attending physicians

in claims submitted to the Part B carriers.

Our proposal addressed services of teaching physicians that are

payable on a fee schedule basis, services of residents in settings that

are not payable under section 1886(h), and services of moonlighting

residents. In addition, the proposed rule addressed, but did not

substantially change, existing rules on related issues on Medicare

payments for the services of residents in approved GME programs

furnished in certain freestanding skilled nursing facilities and home

health agencies, and services of residents who are not in approved GME

programs. We referred to the section 1886(h) mechanisms to distinguish

between that payment methodology and other payment mechanisms.

Title XVIII of the Act provides separate coverage and payment bases

for provider services and physician services. Under Medicare, provider

services, such as inpatient hospital services and skilled nursing

facility services, are covered under Hospital Insurance (Part A) and

are paid from the Part A Trust Fund. Outpatient hospital services are

covered under Supplementary Medical Insurance (Part B) and are paid

from the Part B Trust Fund. Provider services are paid on a prospective

payment, reasonable cost, or other payment mechanism through Medicare

contractors called ``fiscal intermediaries.'' Physician services and

other ``medical and other health services,'' as defined in section

1861(s) of the Act, are generally paid under Part B through Medicare

contractors called ``carriers.'' To administer the Medicare program, we

must distinguish clearly between provider services and physician

services to determine the appropriate payment methodology and the

appropriate Trust Fund that is liable for payment.

As discussed in the proposed rule, in part 405 (``Federal Health

Insurance for the Aged and Disabled''), subpart D (``Principles of

Reimbursement for Services by Hospital-Based Physicians''), current

regulations beginning with Sec. 405.480 set forth the basic principles

regarding payment for services of physicians who practice in providers.

Additional principles applicable to payment for physician services in

teaching hospitals appeared in subpart E (``Criteria for Determination

of Reasonable Charges; Payment for Services of Hospital Interns,

Residents, and Supervising Physicians'') in Secs. 405.520 and 405.521.

Principles applicable to services of interns and residents appeared in

Secs. 405.522 through 405.525. Sections 405.465 and 405.466 addressed

the payment methodology for teaching hospitals that elect reasonable

cost payments for physician services. (See sections

1832(a)(2)(B)(i)(II) and 1861(b)(7) of the Act.) Since the publication

of those regulations, the Congress enacted a series of legislative

changes that affected payments for these services, and we proposed to

revise the regulations to conform to those statutory changes and to

clarify current policy.

Section 948 of the Omnibus Reconciliation Act of 1980 (ORA 1980)

(Pub. L. 96-499), enacted on December 5, 1980, as amended by section

2307 of the Deficit Reduction Act of 1984 (DEFRA 1984) (Pub. L. 98-

369), enacted on July 18, 1984, addressed payments for physician

services in teaching settings. (See section 1842(b)(7) of the Act.)

Another pertinent legislative change, section 108 of the Tax Equity and

Fiscal Responsibility Act of 1982 (TEFRA 1982) (Pub. L. 97-248),

enacted on September 3, 1982, added a new section 1887 to the Act. That

legislation dealt explicitly with distinguishing between the

professional services physicians furnish to individual patients in a

provider and services physicians furnish to the provider itself. While

section 1887 of the Act does not

[[Page 63136]]

specifically address teaching physicians or GME issues, it is

consistent with Medicare policy on classifying the activities in which

physicians in teaching hospitals are engaged.

We published a final rule with comment period in the Federal

Register on March 2, 1983 (48 FR 8902), which implemented the

provisions of section 1887 of the Act. That final rule revised the

regulations that govern Medicare payment for services of physicians who

practice in providers such as hospitals, skilled nursing facilities,

and comprehensive outpatient rehabilitation facilities. As a part of

that final rule, we revised Secs. 405.480 through 405.482, removed

Secs. 405.483 through 405.488, and added new Secs. 405.550 through

405.557. Those regulations--

Set forth basic criteria for distinguishing those

physician services furnished in providers that are payable by Part B

carriers as physician services to individual patients from those

services that are payable by fiscal intermediaries as physician

services to the provider itself;

Set limits on the amounts payable on a reasonable cost

basis to providers for physician services to the provider; and

Established more specific criteria for determining the

basis and amount of payment for physician services in the specialties

of anesthesiology, radiology, and pathology.

In the preamble to the March 1983 final rule (48 FR 8906), we

stated that because of problems related to applying portions of the

revised regulations to teaching hospitals and to implement sections

1842(b)(6) and 1861(b)(7) of the Act for physician payment (as amended

by section 948 of ORA 1980), we planned to publish, in a separate

document, proposed regulations that would establish special rules

governing payment for services of physicians in teaching hospitals.

Those rules would have superseded Secs. 405.520 and 405.521 if they

became effective. Subsequently, however, the Congress passed DEFRA

1984, which further amended section 1842(b)(6) of the Act and

redesignated it as section 1842(b)(7).

Another statutory change that affected payments to teaching

hospitals was section 9202 of the Consolidated Omnibus Budget

Reconciliation Act of 1985 (Pub. L. 99-272), enacted on April 7, 1986,

as amended by section 9314 of the Omnibus Budget Reconciliation Act of

1986 (Pub. L. 99-509), enacted on October 21, 1986, which added a new

section 1886(h) to the Act. Section 1886(h) of the Act revised the

method of calculating Medicare payment for the direct costs of approved

GME activities such as residents' salaries and fringe benefits, from

reasonable cost payment to payments based on hospital-specific per-

resident amounts multiplied by the number of full-time equivalent

residents working in the hospital during a hospital's cost reporting

period.

A major change in the Medicare payment rules for physician services

in general was enacted as part of the Omnibus Budget Reconciliation Act

of 1989 (OBRA 1989) (Pub. L. 101-239), enacted on December 19, 1989,

which added section 1848 to the Act. Section 1848 replaced the

reasonable charge payment mechanism with a fee schedule for physician

services. The Omnibus Budget Reconciliation Act of 1990 (OBRA 1990)

(Pub. L. 101-508), enacted on November 5, 1990, contained several

modifications and clarifications to the OBRA 1989 provisions that

established the physician fee schedule.

2. Payment for Physician Services Furnished in Teaching Settings

a. Current Practices

In our proposed rule (60 FR 38406), we stated that of the nearly

7,000 hospitals that participate in Medicare, approximately 1,200 have

GME programs that are approved for residency training by the

appropriate accrediting organization. (We used the term ``residents''

in the preamble of the proposed rule to include residents, interns, and

fellows who are in formally organized and approved GME programs.)

For hospital cost reporting periods beginning on or after July 1,

1985, the costs of residents' compensation (representing payment for

the residents' services), certain physician compensation costs related

to GME programs, and other GME program costs are payable based on

hospital-specific per-resident amounts as described in Sec. 413.86, in

accordance with section 1886(h) of the Act. Physician compensation

costs for administrative and supervisory services unrelated to the GME

program or other approved educational activities are payable as

operating costs through diagnosis-related group payments under the

prospective payment system for inpatient services and on a reasonable

cost basis for inpatient services in hospitals excluded from the

prospective payment system and for outpatient services.

In the case of those few teaching hospitals that elect reasonable

cost payments for physician direct medical and surgical services under

section 1861(b)(7) of the Act instead of billing for services to

Medicare beneficiaries on a fee-for-service basis, the election and

payment mechanisms described in former Secs. 405.465 and 405.466 were

set forth in the proposed rule in new Sec. 415.160 and in redesignated

Secs. 415.162 and 415.164.

Practices vary widely among and within teaching hospitals with

respect to the degree of physician involvement in the care of patients.

In some cases, teaching physicians personally direct residents in

furnishing patient care services. In others, residents assume a greater

degree of responsibility for the care patients receive, and the

teaching physicians exercise only general control over the residents'

activities.

b. Statutory and Other Developments Pertaining to Teaching Physician

Services

(1) Original Medicare Law and Regulations

As originally enacted, title XVIII of the Act excluded the services

of physicians, interns, and residents from the definition of

``inpatient hospital services,'' except for the services of interns and

residents in approved training programs. The services of residents in

an approved program of a hospital with which a skilled nursing facility

has a transfer agreement are included in the definition of ``extended

care services'' and in the definition of ``home health services'' in

the case of a home health agency that is affiliated with or under

common control of a hospital having the program. These provisions

established the costs of approved GME programs for provider services

payable by intermediaries on a reasonable cost basis. The Act did not

include special rules for payment of physician services in teaching

hospitals.

At the time of the publication of the proposed rule, under

Secs. 405.520 and 405.521 for teaching physician services, and

Secs. 405.522 through 405.525 for residents' services, a physician in a

teaching setting was considered the attending physician for a Medicare

patient, and thereby qualified for Part B payment, only if he or she

furnished ``personal and identifiable direction'' to the interns and

residents who provided the actual services to the patient. Before

January 1, 1992, Part B physician services were paid under the

reasonable charge payment system. As of January 1, 1992, these

physician services are paid under the physician fee schedule set forth

in part 414 (56 FR 59502).

Although former Sec. 405.521(b) listed examples that illustrated

the types of responsibilities attending physicians

[[Page 63137]]

typically carry out, the list was not exhaustive. In individual cases,

it might be difficult to determine, by referring to Sec. 405.521,

whether a physician in a teaching setting is the ``attending

physician'' for a Medicare patient. It might be necessary for the

carrier to review hospital charts to see if the attending physician

requirements were met; however, the involvement of the teaching

physician in individual services was often unclear from a review of the

charts.

It became apparent, shortly after the former Secs. 405.520 and

405.521 were issued, that some Medicare carriers were paying charges

for physician services in some teaching hospitals, even though interns

and residents were primarily responsible for the care of the patients.

The physicians who were billing for these services were often assuming

only limited responsibility for the medical management of the patients'

treatment. It also became clear that some physicians were submitting

charges for services furnished to Medicare patients even though non-

Medicare patients were not billed for similar services, and patients

generally were not obligated to pay for those physician services.

In April 1969, those problems led to the issuance of Intermediary

Letter 372, which set forth specific conditions that physicians in

teaching settings were required to meet to be considered attending

physicians and, thus, qualify to charge the carrier for services in

which they involved residents. It also specified how carriers were

required to determine the reasonable charges for these services.

Although Intermediary Letter 372, which was still in effect at the time

of the publication of the proposed rule, provided guidance to Medicare

carriers and intermediaries on payment for these services, it was not

applied uniformly by all Medicare carriers.

(2) 1972 Amendments

On October 30, 1972, the Congress amended the Act to provide rules

on payment for physician services (as distinguished from the services

of interns and residents) furnished in teaching hospitals. Section 227

of the Social Security Amendments of 1972 (Pub. L. 92-603) amended

section 1861(b) of the Act to require that Medicare treat those

services as hospital services and pay for them on a reasonable cost

basis, except under certain specific circumstances. Section 227 also

made certain incentives available to hospitals that elected to be paid

for physician services on a reasonable cost basis.

In subsequent legislation (section 15 of Pub. L. 93-233, enacted on

December 31, 1973, and section 7 of the End-Stage Renal Disease Program

Amendments of 1978 (Pub. L. 95-292), enacted on June 13, 1978), the

Congress deferred implementation of all provisions of section 227 of

the 1972 amendments except for the incentives to elect reasonable cost

payment for physician direct medical and surgical services. The cost

reimbursement provisions were implemented through former Sec. 405.465,

as published in a final rule on August 8, 1975 (40 FR 33440). The

statutory provisions for which the Congress deferred implementation

were eventually replaced by new provisions passed by the Congress in

ORA 1980. ORA 1980 reaffirmed, but did not otherwise affect, the

provisions of section 227 of the 1972 amendments authorizing cost

reimbursement incentives.

(3) ORA 1980

Section 948 of ORA 1980 made several important changes in the

sections of the Medicare statute that address payment for physician

services in teaching hospitals. Specifically, section 948--

Repealed the provisions of the 1972 Amendments that

required Medicare to pay for those services (with certain exceptions)

on a reasonable cost basis;

Amended section 1861(b) of the Act to allow hospitals with

approved teaching programs to elect to be paid on a reasonable cost

basis for physician direct medical and surgical services furnished to

their Medicare patients and for the supervision of interns and

residents in the care of individual patients if all physicians in the

hospital agree not to bill charges for their services furnished to

Medicare patients; and

Added section 1842(b)(6) of the Act (now section

1842(b)(7)) to specify the conditions that must be met to permit

payment under Part B for physician services in teaching hospitals that

do not elect cost reimbursement, and to provide special payment rules

for determining the customary charges applicable in this situation.

In the Conference Report accompanying ORA 1980 (H.R. Rep. No. 1479,

96th Cong., 2d Sess. 145 (1980)), the Conference Committee stated that

its intention was to permit payment for physician services in a

teaching hospital on a reasonable charge basis only if the physician is

the patient's ``attending physician.'' The conferees also endorsed the

attending physician criteria in Intermediary Letter 372.

The Conference Report further stated that ``[t]he conferees intend

(without precluding reasonable changes in the future) that in

determining the amount payable on a charge basis under Medicare Part B

for services of physicians in teaching hospitals, the policies

contained in Intermediary Letter 372 should be generally followed where

these are not inconsistent with the provisions of the conference

agreement.'' Ibid. p. 146.

(4) DEFRA 1984

Subsequently, section 2307(a) of DEFRA 1984 further amended section

1842(b)(7) of the Act concerning conditions for payment for physician

services furnished in teaching hospitals that do not elect cost

reimbursement. Section 2307(a) was later amended by sections 3(b) (5)

and (6) of the DEFRA Technical Amendments (Public Law 98-617), enacted

on November 8, 1984. As revised, section 1842(b)(7) of the Act (which

was redesignated from section 1842(b)(6) of the Act by section 2306 of

DEFRA '84) provided that--

The customary charge of a physician qualifying as a

teaching physician is set no lower than 85 percent of the prevailing

charge paid for similar services in the same locality; and

If all the teaching physicians in a teaching hospital

agree to accept assignment for all the services they furnish to

Medicare patients in that hospital, the customary charge is set at 90

percent of the prevailing charge paid for similar services in the same

locality.

(5) 1989 Proposed Rule

On February 7, 1989, we published a proposed rule that would have

implemented the teaching physician payment provisions of both ORA 1980

and DEFRA 1984 (54 FR 5946). In that document, we proposed the

following changes relating to teaching physicians:

Revise the regulations governing the conditions under

which Medicare payment is made for the services of physicians in

teaching settings and implement a special methodology for determining

customary charges for the services of teaching physicians.

Revise the regulations governing Medicare payment to

providers for compensation paid to physicians who furnish services that

are of general benefit to patients in the provider.

That proposed rule was never published in final because legislation

enacted in 1989 and 1990 that mandated the implementation of the

Medicare physician fee schedule had the effect of replacing the payment

methodology of the proposed rule.

[[Page 63138]]

3. Payments for Supervising Physicians in Teaching Settings and for

Residents in Certain Settings

In our July 26, 1995 proposed rule, we proposed to revise the

regulations because of the substantial changes that have taken place in

the way Medicare payments for physician services are determined (that

is, the replacement of the reasonable charge system with the physician

fee schedule); the length of time since the publication of the February

1989 proposed rule; and our decision to propose to replace the

attending physician criteria of the February 1989 proposed rule. The

details of the attending physician policy had been set forth earlier in

Intermediary Letter 372, published in April 1969.

We proposed to change the attending physician criteria from those

of Intermediary Letter 372 to make the criteria more flexible in terms

of the individual teaching physician who may serve as the responsible

physician for a particular service while ensuring that a teaching

physician is present during at least some portion of each service

payable by the carrier. We also proposed rules based on other Medicare

policies that had been in effect for years but had never been

explicitly addressed in the regulations.

a. Distinction Between Teaching Hospital and Teaching Setting

We proposed to distinguish between ``teaching hospital'' and

``teaching setting,'' because the former is more directly related to

intermediary payments, and the latter (although defined in terms of

intermediary payments) is more directly related to carrier payments. We

proposed to define ``teaching hospital'' as a hospital engaged in an

approved GME residency program in medicine, osteopathy, dentistry, or

podiatry. We proposed to define ``teaching setting'' as a provider or

freestanding setting for which Medicare payment for the services of

residents is made under the direct GME payment provisions of

Sec. 413.86 (hospitals, hospital-based providers, and settings,

including nonprovider settings, meeting the requirements for residents

in Sec. 413.86(f)(1)(iii)), or on a reasonable cost basis under the

provisions of Sec. 409.26 or Sec. 409.40(f) for residents' services

furnished in freestanding skilled nursing facilities or home health

agencies, respectively.

b. Statutory Requirements for Payment in Teaching Hospitals Not

Electing Reasonable Costs for Physician Services to Individual Patients

Section 1842(b)(7) of the Act is generally premised on the use of

customary charges, that is, the reasonable charge system, as the basis

for Medicare payments for the services of physicians in teaching

hospitals. Section 1848 of the Act, however, established the physician

fee schedule as the payment methodology for physician services

furnished beginning January 1, 1992 without any exception for physician

services furnished in teaching settings. Therefore, we based the

policies in the July 26, 1995 proposed rule on principles established

in legislation on payment for physician services generally under the

physician fee schedule, on payment for physician services furnished in

providers, and on payment to hospitals for GME programs. With regard to

payment to hospitals for GME programs, the proposal addressed

activities associated with GME programs that were not payable through

fiscal intermediary payment mechanisms.

c. Intermediary Letter 372 Attending Physician Criteria

The Intermediary Letter 372 attending physician criteria and

related policy were developed by Medicare in 1969 as a means of

documenting the involvement of teaching physicians in patient care

services furnished in teaching hospitals and have been controversial

ever since. It was recognized then and now that residents must furnish

patient care services to develop their skills as physicians or other

types of practitioners. The ``attending physician'' policy was

developed as a mechanism to make Part B fee schedule payments for

services in which residents were involved. The main requirement of the

policy was that there would be a single attending physician who

personally examined the beneficiary within a reasonable time after

admission, confirmed the diagnosis and course of treatment, and was

continuously involved in the care of the beneficiary throughout the

stay. The attending physician policy as set forth in Intermediary

Letter 372 and related issuances specifically stated that the attending

physician had to be present when a major surgical procedure or a

complex or dangerous medical procedure was performed, but was vague,

perhaps necessarily, on the matter of the presence of the physician

during other occasions of inpatient service. There was less ambiguity

with regard to hospital outpatients. Part A Intermediary Letter No. 70-

7/Part B Intermediary Letter No. 70-2 (issued in January 1970), a

question-and-answer on Intermediary Letter 372, indicated that the

supervising physician must either personally perform the service or

function as the attending physician and be present while a service is

being furnished (question 14).

Medicare carriers were directed to periodically review the hospital

charts for verification of the establishment of attending physician

relationships and their involvement in individual services. If the

chart did not substantiate a sufficient level of involvement in the

care furnished, the teaching physician role was seen as supervisory in

nature, rather than as an attending physician, even though the teaching

physician may have had legal responsibility for the care furnished to

the patient. Consequently, the fiscal intermediary for the hospital

would pay Medicare's share of the salary costs of the teaching

physician attributable to the supervision of residents, but the

Medicare carrier would not make payment for the physician services on

the basis of reasonable charges.

We believe, after years of working experience with the Intermediary

Letter 372 attending physician policy, that we should replace it. The

amount of postpayment review necessary to verify the establishment and

continuity of the attending physician relationship from patient charts

had become impractical given reductions in contractor budgets and was

inconsistent with more recent congressional action. While the Congress

endorsed the attending physician policy in the Conference Report

accompanying ORA 1980, the Intermediary Letter 372 policy might be

viewed as not entirely consistent with the payment mechanism enacted in

OBRA '86 under section 1886(h) of the Act for payment of direct GME

costs in teaching hospitals. For example, Intermediary Letter 372

indicated that, if a physician was not an attending physician but

supervised a resident who furnished a service, the costs of the

physician services were payable by the intermediary. Under section

1886(h) of the Act, if a service was determined not to be an attending

physician service billable under Part B, the service could not become a

provider service for purposes of additional payments made under Part A

since the GME payments were prospectively determined amounts that could

not be adjusted based on the individual circumstances of the delivery

of individual services. Further, allocation agreements between

physicians and hospitals identifying the various activities in which

the

[[Page 63139]]

physicians were involved for purposes of determining the appropriate

payment amounts had no effect on GME payments in an individual hospital

cost reporting period. The costs that were allocated during the GME

base period were carried forward regardless of changes in the physician

activities.

Moreover, the Intermediary Letter 372 policy left it to individual

carriers to determine coverage of the services based on customary

practices in the area or on the competence of individual residents. For

example, a sentence in Intermediary Letter 372.A. reads as follows:

If the supervising physician was present at surgery, and the surgery

was performed by a resident acting under his close supervision and

instruction, he would not be the attending surgeon unless it were

customary in the community for such services to be performed in a

similar fashion to private patients who pay for services rendered by

a private physician.

While this policy might have been appropriate 30 years ago in the early

days of Medicare, we stated in our proposed rule (60 FR 38409) that we

believe it is inappropriate to base the determination of whether a

carrier will pay several thousand dollars or zero dollars for a

surgical procedure on this standard, which could result in a wide

disparity of policy from area to area regarding when payment is made.

Another problem with the Intermediary Letter 372 policy was

reliance on a single physician to be the attending physician for the

beneficiary throughout the inpatient stay. The only exception

permitting an attending physician relationship for only a portion of a

stay was if the portion was a distinct segment of the patient's course

of treatment, such as the postoperative period. Another example from

Intermediary Letter 372 reads as follows:

A group of physicians share the teaching and supervision of the

house staff on a rotating basis. Each physician sees patients every

third day as he makes rounds. No physician can be held to be one of

these patients' attending physician for any portion of the hospital

care although consultations and other services they personally

perform for the patient might be covered.

We stated in our proposed rule (60 FR 38409) that we believe that

this emphasis on a single teaching physician serving as the attending

physician through the stay was no longer necessary, and that we should

provide teaching hospitals and GME programs with flexibility in the

determination of the responsible teaching physician in an individual

case. We no longer believe the Intermediary Letter 372 requirement that

a single physician be recognized by the beneficiary as his or her

personal physician through a period of hospitalization reflects current

realities. Further, the existing attending physician regulation might

operate at cross-purposes with managed care arrangements that often

employ treatment teams.

The Intermediary Letter 372 requirements for continuity of care

might be difficult for carriers to verify from reviews of medical

records, might be interpreted in different ways by different carriers,

and might be counterproductive and burdensome in the delivery of

services to the patient. We believe the proposed policy would address

potential sources of misunderstanding and abuse that have been

longstanding Medicare program concerns. For example, Intermediary

Letter 372 required the attending physician to personally examine the

patient, review the history and record of test results, etc. From

discussions with carrier medical directors, it is our understanding

that some carriers considered the requirements to be met if the

teaching physician first saw the patient 1 or 2 days after admission.

In those situations, the carrier might pay for an admission history and

physical performed by a resident on Saturday while the teaching

physician did not actually see and examine the patient until Monday.

Other carriers would maintain that, to pay for the admission history

and physical as an attending physician, the teaching physician would

have to see the patient on the day the service was performed.

We believe that the most important consideration should be the

presence of the teaching physician during the key portion of the

service or procedure being furnished by the resident, and that

requiring both an attending physician relationship and the presence of

that same physician during every billable service is no longer

warranted. Thus, under our proposal, carriers would no longer pay for

services such as admission evaluation and management services unless a

teaching physician was present during the key portion of the service.

d. Carrier Payment for Services of Teaching Physicians--General

We proposed to eliminate the Intermediary Letter 372 attending

physician criteria from the determination of whether payment should be

made for the services of physicians in teaching settings. We recognize

that the term ``attending physician'' is used in academic medicine to

denote the responsible physician, and we believe that hospitals and GME

programs should be free to designate any physician to be the attending

physician of the patients in the teaching setting. We proposed to

require the following conditions for services of teaching physicians

(physicians who involve residents in the care of their patients) in

both inpatient and outpatient settings to be payable under the

physician fee schedule:

A teaching physician (a physician other than a resident or

fellow in an approved program) must be present for a key portion of the

time during the performance of the service for which payment is sought.

In the case of surgery or a dangerous or complex

procedure, the teaching physician must be present during all critical

portions of the procedure and must be immediately available to furnish

services during the entire service or procedure. We specified that the

teaching physician presence requirement is not met when the presence of

a teaching physician is required in two places for concurrent major

surgeries. The operative notes must indicate when the teaching

physician presence in individual procedures began and ended. In the

case of procedures, such as an endoscopy, in which a body area, rather

than a representation, is viewed, we would not make payment if the

teaching physician was not present during the viewing. A discussion of

the findings with a resident would not be sufficient. The situation is

contrasted with a diagnostic procedure, such as an x-ray, in which the

physician would not be expected to be present during the performance of

a test and could bill for an interpretation by reviewing the film with

the resident (or by performing an independent interpretation).

In the case of services such as evaluation and management

services (for example, visits and consultations), for which there are

several levels of service available for reporting purposes, the

appropriate payment level must reflect the extent and complexity of the

service if the service had been fully furnished by the teaching

physician. In other words, if the medical decision-making in an

individual service is highly complex to an inexperienced resident, but

straightforward to the teaching physician, payment is made at the lower

payment level reflecting the involvement of the teaching physician in

the service. We intend to promote flexibility and leave the decision to

the teaching physician as to whether the teaching physician should

perform hands-on care, in addition to the care furnished by the

resident in the presence of the teaching physician.

[[Page 63140]]

However, in the case of both hospital inpatient and outpatient

evaluation and management services, the teaching physician must be

present during the key portion of the visit.

The presence of the physician during the service or

procedure must be documented in the medical records.

The proposal eliminated the Intermediary Letter 372 requirement

that the attending physician personally examine the patient and left

the decision to the teaching physician as to whether he or she should

perform an examination in addition to the resident's examination based

on medical and risk management considerations rather than Medicare

payment rules. For example, a beneficiary might be admitted to the

hospital on a Saturday and be examined by a resident in the presence of

a teaching physician on duty at the time. On Monday, another teaching

physician might be designated to be the attending physician in the

case. Under the proposal to eliminate the Intermediary Letter 372

attending physician criteria, the services of both teaching physicians

in this example would be payable (as long as distinct services are

furnished).

Under our proposal, we clarified that services of teaching

physicians that involve the supervision of residents in the care of

individual patients are payable under the physician fee schedule only

if the teaching physician is present during the key portion of the

service. If a teaching physician is engaged in such activities as

discussions of the patient's treatment with a resident but is not

present during any portion of the session with the patient, we believe

that the supervisory service furnished is a teaching service as

distinguished from a physician service to an individual patient.

We believe that this clarification is consistent with existing

policy. Part A Intermediary Letter No. 70-7/Part B Intermediary Letter

No. 70-2, issued in January 1970, contained a series of questions and

answers about the attending physician policy set forth in Intermediary

Letter No. 372. Question 14 of that issuance addressed services

furnished in emergency rooms and outpatient departments and states the

following:

Q. Intermediary letter No. 372 states, ``An emergency room

supervising physician may not customarily be considered to be the

attending physician of patients cared for by the house staff, etc.'' Is

this also true in the hospital's outpatient department?

A. Yes, because an attending physician relationship is not normally

established with anyone other than the treating physician in an

outpatient department. If the Part B bills are submitted for services

performed by a physician in either the emergency room or in any part of

the outpatient department, the hospital records should clearly indicate

either that: the supervising physician personally performed the

service; or he functioned as the patient's attending physician and was

present at the furnishing of the service for which payment is claimed.

At the same time we were concerned about the integrity of the

Medicare payment process, we recognized that application of this policy

to the reimbursement of teaching physicians in family practice

residency programs raised special concerns about the viability of these

programs. Family practice residency programs are different from other

programs because training occurs primarily in an outpatient setting,

known as a family practice center. In these centers, residents are

assigned a panel of patients for whom they will provide care throughout

their 3 years of training. While teaching physicians supervise this

care and, indeed, are present during the actual furnishing of services

in some circumstances (most notably with first year residents and for

more complex patient cases), a general requirement that teaching

physicians be physically present during all visits to the family

practice center would undermine the development of this physician/

patient relationship. This requirement also would be incompatible with

the way family practice centers are organized and staffed and could

require the hiring of additional teaching physicians when the faculty

are already in short supply.

We stated in our July 26, 1995 proposed rule (60 FR 38410) that we

would be willing to develop a special rule for paying teaching family

physicians that takes into account the unique nature of these training

programs while clarifying the appropriate level of involvement of the

teaching physician in patient care in family practice centers. We

invited comments on the structure and content of such a rule, or a

legislative proposal, along with any supportive data. We also invited

comments on whether and how such a rule might be applied to other

primary care training programs.

e. Special Treatment--Psychiatric Services

During the period in which we were developing the February 1989

proposed rule, we met with representatives of psychiatric GME programs

who indicated that it was inappropriate for a physician other than the

treating resident to be viewed by psychiatric patients as their

physician. In psychiatric programs, the teaching physician may observe

a resident's treatment of patients only through one-way mirrors or

video equipment. We accepted this position and proposed that, with

respect to psychiatric services (including evaluation and management

services) furnished under an approved psychiatric GME program, the

teaching physician would be considered to be ``present'' during each

visit for which payment is sought as long as the teaching physician

observes the visit through visual devices and meets with the patient

after the visit.

f. Physician Services Furnished to Renal Dialysis Patients in Teaching

Hospitals

Effective for services furnished on or after August 1, 1983,

Medicare pays for physician services to end-stage renal disease

patients on the basis of the physician monthly capitation payment

method described in Sec. 414.314. This payment method generally applies

to renal-related physician services furnished to outpatient maintenance

dialysis patients, regardless of where the services are furnished (that

is, in an independent end-stage renal disease facility, a hospital-

based end-stage renal disease facility, or in the patient's home).

Physician services furnished to end-stage renal disease patients on or

after August 7, 1990 may also be paid on the basis of the initial

method as described in Sec. 414.313. We would continue application of

these physician payment methods to teaching hospitals with end-stage

renal disease facilities. We would not impose any special medical

record documentation requirements solely because the end-stage renal

disease facility is based in a teaching hospital.

Physician fee schedule payments for covered physician services

furnished to inpatients in a hospital by a physician who elects not to

continue to receive payment on a monthly capitation basis through the

period of the inpatient stay, or who is paid based on the initial

method, would be determined according to the rules described in

proposed Sec. 415.170. Physicians would have to either personally

furnish the services, or furnish the services as a teaching physician

as described in proposed Sec. 415.172.

g. Special Criteria for Anesthesia Services and Interpretation of

Diagnostic Tests

Special criteria for anesthesia services involving residents appear

in Sec. 415.178. In the case of diagnostic radiology and other

diagnostic tests, we make payment

[[Page 63141]]

for the interpretation if the physician either personally performs the

interpretation or reviews the resident's interpretation.

h. Services of Residents

We proposed to incorporate into the regulations longstanding

Medicare coverage and payment policy regarding the circumstances under

which the services of residents are payable as physician services.

These policies are in operating instructions and other issuances.

Generally, the services of residents in approved GME programs

furnished in hospitals and hospital-based providers are payable through

the direct GME payment methodology in Sec. 413.86. For hospital cost

reporting periods beginning on or after July 1, 1985, a teaching

hospital is entitled to include residents working in the hospital and

hospital-based providers in the full-time equivalency count used to

compute direct GME payments. These payments are based on per-resident

amounts reflecting GME costs incurred during a base period and updated

by the Consumer Price Index. Further, effective July 1, 1987, under the

conditions set forth in Sec. 413.86(f)(1)(iii), a teaching hospital may

elect to enter into a written agreement with another entity for the

purpose of including the time spent by residents in furnishing patient

care services in a setting outside the hospital in the hospital's full-

time equivalency count of residents for GME purposes. The agreement

must specify that the hospital compensate the resident for the services

in the nonhospital setting. When an agreement is in effect, the

teaching setting guidelines of proposed Secs. 415.170 through 415.184

would apply to services in which physicians involve residents in the

nonhospital setting. The services of residents in these settings are

payable as hospital services rather than physician services. We stated

that proposed Sec. 415.200 would replace current Sec. 405.522.

Current Sec. 405.523 addressed payment for the services of

residents who are not in approved programs. The section was applicable

to the services of a physician employed by a hospital who is authorized

to practice only in a hospital setting and to residents in an

unapproved program. We proposed to replace this rule with new

Sec. 415.202. The proposed rule incorporated the policy currently in

section 404.1.B of the Provider Reimbursement Manual (HCFA Pub. 15-1),

which provides that only the costs of the residents' services are

allowable as Part B costs, and that other costs, such as teaching

costs, of an unapproved program are not allowable.

Current Sec. 405.524 (``Interns' and residents' services outside

the hospital'') provided for reasonable cost payments for the services

of residents in freestanding skilled nursing facilities and home health

agencies. We proposed to rename this section to clarify that its scope

is limited to these types of providers and to include it with only

minor changes into a new Sec. 415.204.

We proposed to establish a new Sec. 415.206 to address payment

issues relating to the services of residents in nonprovider settings,

such as freestanding clinics that are not part of a hospital. Paragraph

(a) addresses situations when a teaching hospital and another entity

have entered into a written agreement under which the time the

residents spend in patient care activities in these nonhospital

settings is included in the hospital's full-time equivalency count used

to compute direct GME payments. If an agreement is in force, the

carrier would make payments for teaching physician and other physician

services under the rules in Secs. 415.170 through 415.190.

If a nonprovider entity, such as a freestanding family practice or

multispecialty clinic, does not enter into this type of agreement for

residency training with a teaching hospital, the payment mechanism in

proposed Sec. 415.206(b) would apply in the case of services furnished

by certain residents. We modified the policy on Part B billings for

services furnished by licensed residents in the late 1970's in an

action designed to enhance the ability of primary care residency

programs to finance their training activities outside the teaching

hospital setting. We revised the Medicare Carriers Manual (HCFA Pub.

14-3) to cover residents' services furnished in a setting that is not

part of a hospital as physician services if the resident was fully

licensed to practice by the State in which the service was performed.

This policy applies whether or not the residents are functioning within

the scope of their approved GME program. Under these circumstances, the

resident is functioning in the capacity of a physician, and the

teaching physician guidelines do not apply.

Additionally, the services of residents practicing in freestanding

federally qualified health centers and rural health clinics who meet

the requirements of proposed Sec. 415.206(b) would be eligible for

payment under the payment methodology for federally qualified health

centers. (We would make payments for residents' services in a hospital-

based entity under the provisions of Sec. 413.86 for direct GME

payments.) We proposed to allow freestanding federally qualified health

centers and rural health clinics to include the costs of a service

performed by a resident meeting those requirements as an allowable cost

on the entity's cost report. We proposed to amend Sec. 405.2468(b)(1),

which sets forth allowable costs for federally qualified health centers

and rural health clinic services, to recognize these costs. Further, a

resident is considered to be a physician as defined in revised

Sec. 405.2401(b) for the purpose of determining payments to the

federally qualified health centers and rural health clinics. Consistent

with the payment method for federally qualified health centers and

rural health clinics, payments for services furnished by residents in

federally qualified health centers and rural health clinics would be

paid under Sec. 405.2462 rather than under the physician fee schedule.

In other words, services of the resident would be treated in exactly

the same manner as services of other physicians who are not residents

in the federally qualified health center or rural health clinic. We

believe that recognizing the costs of these residents in federally

qualified health centers and rural health clinic settings would create

more uniformity in the way these costs are treated by the Medicare

program.

We proposed to establish a new Sec. 415.208 to address carrier

payments for the services of ``moonlighting'' residents. Paragraph (a)

defines these services as referring to services that licensed residents

perform that are outside the scope of an approved GME program.

Paragraph (b) reflects the policy set forth in section 2020.8.C. of the

Medicare Carriers Manual under which carriers may pay under the

physician fee schedule for the services of moonlighting residents in

the outpatient department or emergency department of a hospital in

which they have their training program if there is a contract between

the resident and the hospital indicating that the following criteria

are met:

The services are identifiable physician services and meet

the criteria in Sec. 415.102(a) (formerly Sec. 405.550(b)).

The resident is fully licensed to practice medicine,

osteopathy, dentistry, or podiatry in the State in which the services

are performed.

The services can be separately identified from those

services that are required as part of the approved GME program.

Paragraph (c) indicates that the moonlighting services of a

resident furnished outside the scope of an approved GME program in a

hospital or other setting that does not participate in

[[Page 63142]]

the GME program are payable as physician services under the physician

fee schedule.

i. Redesignation of Regulations on Teaching Hospitals, Teaching

Physicians, and Physicians Who Practice in Providers

As a part of this rulemaking process, we proposed to redesignate

the regulations currently set forth in Secs. 405.465 and 405.466,

405.480 through 405.482, 405.522 through 405.524, 405.550, 405.551,

405.554, 405.556, and 405.580 into a new part 415, along with the new

regulations proposed in this rule. The redesignation is part of our

continuing effort to improve the overall organization of title 42 of

the Code of Federal Regulations and, in this case, specifically, the

organization of the regulations on teaching hospitals, teaching

physicians, and physicians who practice in providers.

Except as indicated below, we proposed only technical changes to

conform cross-references, and no substantive changes were included. We

proposed to remove Secs. 405.520 and 405.521 because the applicable

rules for payment of services are obsolete. We also proposed to remove

the chart for payment to interns and residents in Sec. 405.525 as

obsolete. In addition, we proposed to remove Sec. 405.552 because the

applicable payment rules for anesthesia services are set forth in

Sec. 414.46. The proposed deletion of Sec. 405.552 was an error; we are

redesignating this section as Sec. 415.110.

We intended the redesignation to make these regulations easier to

use. Following is a distribution table that indicates the new section

numbers that will result from the redesignation or the removal of the

section:

Distribution Table

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

Old section New section

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

405.465............................. 415.162

405.466............................. 415.164

405.480............................ 415.55

405.481............................ 415.60

405.482............................ 415.70

405.520............................ Removed.

405.521............................ Removed.

405.522............................ 415.200

405.523............................ 415.202

405.524............................ 415.204

405.525............................ Removed.

405.550............................ 415.100, 415.102

405.551............................ 415.105

405.552............................ 415.110

405.554............................ 415.120

405.556............................ 415.130

405.580............................ 415.190

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

Following is a derivation table that shows the origin of each

section of the new material:

Derivation Table

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

New section Old section

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

415.1.....................................................

415.50....................................................

415.55.................................................... 405.480

415.60.................................................... 405.481

415.70.................................................... 405.482

415.100, 415.102.......................................... 405.550

415.105................................................... 405.551

415.110................................................... 405.552

415.120................................................... 405.554

415.130................................................... 405.556

415.150...................................................

415.152...................................................

415.160...................................................

415.162................................................... 405.465

415.164................................................... 405.466

415.170...................................................

415.172...................................................

415.174...................................................

415.176...................................................

415.178...................................................

415.180...................................................

415.184...................................................

415.190................................................... 405.580

415.200................................................... 405.522

415.202................................................... 405.523

415.204................................................... 405.524

415.206...................................................

415.208...................................................

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

4. Public Comments on the Teaching Physician Proposal in the Proposed

Rule and Our Responses

We received several thousand comments on the teaching physician

proposal in our July 26, 1995 proposed rule. Almost all of the comments

came from medical schools, residency programs, and other entities that

bill for physicians' services in teaching hospitals and GME programs.

The comments and our responses to them follow.

Comment: Most commenters argued that the requirement of teaching

physician presence during individual services was a significant

departure from the current practice, and that a teaching setting would

need a great deal of time to implement the requirement. They requested

a delay in the effective date of any new policy. They believed that

January 1 would be a particular problem since it falls in the middle of

the cost reporting period for most teaching hospitals.

Response: We do not believe that the physical presence requirement

is a significant departure from current practice. Instead, as we have

indicated in the proposed rule and in this final rule, the proposed

rule requiring physical presence clarifies current policy. Under the

criteria in Intermediary Letter 372, Part B payment should be made only

when a supervising physician either personally performed the service or

functioned as the attending physician and was present while the service

was furnished. It has always been our intent that, at a minimum, a

teaching physician must be present during a service furnished by an

intern or resident in order for the teaching physician to receive Part

B payment.

We proposed to clarify our policy because it has not been enforced

consistently across carriers. More specifically, we have learned that

some teaching physicians are billing Medicare and receiving Part B

payment for services even when the service is performed by an intern or

resident outside the presence of the teaching physician and the

teaching physician has minimal involvement, or no involvement, in the

service. Under the physician fee schedule, payment amounts are intended

to reflect the amount of resources required for a particular service,

and we believe a teaching physician should not receive a resource-based

fee schedule amount when the physician has expended little or no

resources with respect to the service. It would be particularly

inequitable to make a resource-based payment to some teaching

physicians when other teaching physicians receive no payment because a

carrier is properly applying the physical presence requirement in

Intermediary Letter 372.

Thus, the proposed rule would clarify the physical presence

requirement reflected in Intermediary Letter 372. At the same time, the

proposed rule increases flexibility for billing. The criteria in

Intermediary Letter 372 were premised in part on the notion that the

same physician served as the attending physician throughout the entire

inpatient stay; therefore, only that physician could bill Medicare Part

B. Accordingly, under Intermediary Letter 372, if a patient receives a

service from the attending physician soon after admission, and receives

services from other physicians during the course of the inpatient stay,

the other physicians cannot bill Medicare Part B for services furnished

by a resident. The proposed rule deletes the requirement of a single

attending physician, and allows more than one teaching physician to

receive Medicare Part B payment with respect to a particular inpatient

stay.

Although the physical presence requirement merely clarifies current

policy, we are nevertheless willing to delay the effective date of the

provisions of this final rule concerning teaching physicians until July

1, 1996 to give our

[[Page 63143]]

contractors adequate time to educate all affected parties. This delay

will apply to all provisions of the regulation concerning teaching

physicians, including those that state the new policies relating to the

elimination of the single attending physician requirement and the

exception for residency programs in certain centers.

Comment: One commenter stated that section 948 of the Omnibus

Reconciliation Act of 1980, as amended by section 2307 of the Deficit

Reduction Act of 1984, requires only that--

The physician renders sufficient personal and identifiable

physicians' services to the patient and exercises full, personal

control over the management of the portion of the case for which

payment is sought.

The commenter believed that these legislative provisions contain no

physician presence requirement and questioned our authority to change

25 years of policy without a Congressional mandate to do so.

Response: We believe that the physical presence requirement is

entirely consistent with our statutory authority. Under section 1887 of

the Act, we are authorized to establish criteria to distinguish between

services furnished for an individual patient, which may be paid for by

carriers as physician services, and services that are furnished for the

general benefit to patients in a hospital, which are paid for by

intermediaries.

In addition, we do not view the proposed policy as inconsistent

with the statutory provision cited by the commenter. In the first

place, we note that section 1842(b)(7) of the Act is largely premised

on the use of charges as a basis for payment, and the charge-based

system for physicians' services has been superseded by the enactment of

the physician fee schedule. Nevertheless, the requirements stated in

that section are not in conflict with the physical presence

requirement. Section 1842(b)(7) provides that Part B payment may not be

made for the services of teaching physicians unless, among other

things, ``The physician renders sufficient personal and identifiable

services to the patient and exercises full personal control over the

management of the portion of the case for which payment is sought.''

(Emphasis added.)

We believe we have ample authority under these provisions, as well

as section 1848 of the Act, to determine the circumstances under which

a teaching physician has performed a service for a patient, and thus

has furnished a ``physician's service'' that warrants Part B payment

under the physician fee schedule. Currently, despite the criteria in

Intermediary Letter 372, many teaching physicians are billing Medicare

and receiving Part B payment in situations when they have minimal, if

any, involvement in the care of an individual patient. For example, the

teaching physician may have medical and legal responsibility for the

care a resident furnishes to a patient but may never actually see the

patient after admission to the hospital. We believe it is inappropriate

to make Part B payment in these cases, particularly because the amount

of payment is resource-based.

Of course, it is often difficult, and quite time-consuming, to

determine when a physician is ``sufficiently involved'' in a particular

patient care service so that Part B payment is warranted. As indicated

in the proposed rule (60 FR 38409), the amount of postpayment review

necessary to verify the involvement of teaching physicians in the care

of individual patients would be enormous, and the use of scarce carrier

resources in that effort would be impractical. Therefore, consistent

with our authority to establish standards for determining when a

service is furnished for a patient, as a general matter we believe the

most appropriate and feasible manner to determine when Part B payment

may be made is to require that the teaching physician must be present

for the service for which payment is sought. The physical presence

requirement identifies situations when the teaching physician is

sufficiently involved in the service, and at the same time it provides

a standard that can be readily documented and verified.

Comment: One commenter argued that, under the proposed rule,

teaching physicians would not be reimbursed in any manner under

Medicare for certain teaching activities that were previously paid for

under Part B. According to the commenter, Part A payment reflects base

year costs that include only teaching physician costs related to the

administration of the teaching program, and ``Teaching physician time

was not allocable to Part A if attributable to patient care, whether

the service was personally performed by the physician, or furnished in

the context of the attending physician relationship.'' The commenter

argued that teaching activities related to services to individual

patients could not be included in base year costs and thus would never

be reimbursed under Part A. The commenter concluded that, under the

physical presence requirement, teaching activities related to the care

of individual patients would not be reimbursed under either Part A or

Part B.

Response: We believe the policies reflected in this final rule

fairly reimburse hospitals and physicians for the activities of

teaching physicians. As we have indicated, currently many teaching

physicians are billing Medicare and receiving Part B payment even when

they have little or no involvement in a service furnished by an intern

or resident. We believe it is not appropriate for teaching physicians

to receive physician fee schedule payment in these situations as if the

teaching physician had personally performed the service, particularly

since fee schedule payments are intended to reflect the amount of

resources expended by the physician. In order to address this problem,

and to ensure that Part B payment is made only when the situation

warrants, this final rule clarifies the physical presence requirement

reflected in Intermediary Letter 372. We believe the requirement is

reasonable and necessary because it ensures that Part B payment is made

only when a teaching physician is sufficiently involved in the service

and does so in a manner that can be readily documented.

We recognize that there may be some inherent tension between

policies for carrier payments under Part B and policies for

intermediary payments under Part A or Part B. If a service or activity

is payable under Medicare, and it is not payable under Part B, then

presumably the service or activity is encompassed in the Part A

payment. Therefore, any ``change'' in (or clarification of) Part B

policy may, at least arguably, implicate Part A policy. The commenter

argued that, despite this relationship between Part A and Part B, under

the proposed policies, some services might not be reimbursed at all

under Medicare.

We believe that the commenter's arguments are misguided. We note

initially that, as a general matter, payment for the costs of direct

GME under Part A, like any system that uses base year costs,

necessarily reflects conditions in the base year, and any number of

conditions might change after the base year (these changes might

benefit or hurt the hospital). However, the use of base years for

purposes of making these Part A payments is required by statute. We do

not believe we should necessarily perpetuate inappropriate payments

under Part B simply because payments under Part A cannot be adjusted.

Moreover, and more significantly, we believe that the policies

reflected in this final rule taken as a whole reasonably reconcile any

tension that there might be between Part A payment policies and

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Part B payment policies. The commenter seemed to suggest that, in

conducting the Part A base year audits, the agency excluded all costs

associated with teaching activities that were related to patient care.

This suggestion, however, is incorrect. Indeed, as the commenter

acknowledged, time spent supervising residents in patient care was

allocable to Part A under the audits if there was no attending

physician relationship. Furthermore, although the commenter also

asserted that 100 percent of a physician's time was allocable to Part B

``in the absence of appropriate documentation,'' it follows that time

spent supervising residents could have been allocated to Part A if the

hospital or the physician provided appropriate documentation. Thus,

contrary to the commenter's suggestion, teaching activities related to

patient care were, or could have been, included in the Part A base year

costs. We believe we should not perpetuate inappropriate Part B

policies simply because hospitals and physicians failed to properly

claim or document Part A costs in the base year.

The commenter also indicated that, under the proposed rule, certain

teaching activities would not be reimbursed under Part B even though

they were reimbursed under Part B previously (incorrectly or

otherwise). This might relate to activities such as discussions about

patient charts with a resident when the teaching physician was not

present during the visit itself. The commenter stated that, in the

proposed rule, we claimed incorrectly that lost Part B revenues could

be collected through Part A. Contrary to the commenter's suggestion, we

did not mean to suggest that services that were previously, but no

longer, paid for under Part B would be paid for through increased

payments under Part A. Rather, we meant to indicate that, at times in

the past, improper payments may have been made.

We believe that our policies adequately reimburse hospitals and

teaching physicians for the activities of teaching physicians. First,

the services of the interns or residents themselves are payable under

separate mechanisms. Thus, to the extent that services are provided by

interns and residents who are largely unsupervised, Medicare pays for

the direct costs of those services through GME payments. Second,

consistent with the criteria in Intermediary Letter 372, the teaching

physician may receive Part B payment as long as the physician is

present for the service. Finally, we are providing further flexibility

for billing in this final rule, so that services may now be paid for

under Part B even though the same services could not previously be

properly billed to Part B; specifically, under this final rule, more

than one teaching physician may bill Part B with respect to a

particular hospital inpatient stay, whereas under Intermediary Letter

372, only a single attending physician could properly bill Part B.

In short, hospitals and physicians will not, as alleged, be

systematically underreimbursed under the policies reflected in this

final rule. The Part A payment encompasses costs of supervising

residents that were (or could have been) properly allocated and

substantiated for the base year. Teaching physicians may continue to

receive Part B payment under the physical presence requirement

reflected in Intermediary Letter 372. And Part B payment may now be

made under circumstances in which payment could not properly be made

under Intermediary Letter 372.

Comment: Many commenters believed that we developed the teaching

physician proposal because we had concluded that beneficiaries in

teaching hospitals receive substandard care when the teaching physician

is not present during the service or procedure.

Response: The policy was not intended to specifically address

quality concerns. Rather, the policy addresses payment issues, in

particular, identifying when it is appropriate to make Medicare Part B

payment to teaching physicians who oversee the services of interns and

residents.

It is important to distinguish between the services of interns and

residents and the services of teaching physicians. Medicare fiscal

intermediaries pay teaching hospitals for the services of interns and

residents. Those services are described in sections 1861(b) and 1832(a)

of the Act and are paid under the methodology established by section

1886(h) of the Act. Thus, the fiscal intermediaries are already paying

teaching hospitals for services furnished to beneficiaries by

residents. The graduate medical education costs payable through the

section 1886(h) methodology also encompass any costs associated with

the supervisory services of teaching physicians that were appropriately

allocated during the base period for that methodology (fiscal year

1984).

Particularly in light of these other payments, we believe that, if

we are to pay a fee to another physician who is medically responsible

for the services the resident is furnishing to the beneficiary, it is

entirely appropriate to require as a condition of payment that the

supervising physician furnish a direct, personal physician service to

the beneficiary. This is the basis for the payment of physician

services under Medicare. If the resident has personally furnished the

service to the beneficiary and the intermediary is paying the teaching

hospital for Medicare's share of the services performed by the

resident, we believe it is appropriate not to pay a full fee to a

supervising physician who was not present when the service was

furnished. Furthermore, the Medicare beneficiary is responsible for a

20 percent coinsurance amount for that physician's services as well as

any deductible liability. We believe it is fully consistent with a

resource-based fee schedule that the physician in whose name the

service is billed furnishes a service to the beneficiary.

Comment: Many commenters stated that residency programs cannot

afford to furnish services to Medicare beneficiaries without Medicare

payment.

Response: Medicare fiscal intermediaries pay approximately $7

billion annually in direct and indirect medical expenses to teaching

hospitals for the costs associated with approved GME programs.

Comment: Some commenters expressed concern about the term ``key

portion'' in determining when the teaching physician should be present.

They stated that it is often difficult to define the key portion of a

service or procedure. Many commenters expressed their concern with the

lack of a clear definition of what constitutes the key portion of every

service or procedure. Many other commenters contended that the key

portion of the teaching physician's services takes place during the

teaching physician's discussions of the case with the resident before

and after a visit or procedures. This argument was made by physicians

in both medical and surgical specialties.

Response: We proposed the concept of the key portion of a service

or procedure to provide flexibility and to avoid requiring the presence

of the teaching physician for the duration of every service or

procedure billed in his or her name. Many of the commenters expressed

the view that the key portion--and the most meaningful portion--of the

teaching physician's service to the beneficiary actually takes place in

the absence of the beneficiary. We do not agree with this

interpretation of key portion because it blurs the distinction between

teaching oversight and actually furnishing an identifiable service to

the beneficiary.

While we recognize the concern that it may be difficult to

determine the key portion for a particular service, this concept is

necessarily general because it

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is not feasible to define the key portion for each and every billable

service. In order to provide guidance, we stated some general

guidelines in the proposed rule. Thus, in the case of surgical, high-

risk, or other complex procedures, the teaching physician must be

present during all critical portions of the procedure and immediately

available to furnish services during the entire service or procedure.

In the case of surgery, the teaching physician's presence is not

required during opening and closing of the surgical field. In the case

of procedures performed through an endoscope, the teaching physician

must be present during the entire viewing.

In the case of evaluation and management services, the teaching

physician must be present during the portion of the service that

determines the level of service billed. The factors to be considered

are complexity of medical decision-making, extent of history obtained,

and extent of examination performed. We believe that the teaching

physician should have considerable discretion in determining the key

portion of the service, and we do not anticipate that carriers will

deny claims submitted based on this discretion, as long as the claims

are documented and in accord with our guidelines. If the teaching

physician believes that a key portion of an entire evaluation and

management service cannot be identified, the teaching physician should

be present for the entire service.

We plan to address this matter further in carrier manual

instructions.

Comment: Some commenters objected to the requirement of the

proposed rule that the teaching physician be present during the viewing

portion of a procedure such as an endoscopy. The commenters believed

that the presence of the physician should be determined by the teaching

physician based on the competence of the resident.

Response: In those situations, we believe that the carrier should

pay for the interpretation of the viewed area by the teaching physician

rather than by the resident. As indicated earlier, the viewing by the

resident is not payable as a physician service; this service by the

resident is paid under direct GME.

Comment: The majority of the commenters identified themselves as

representatives of family practice residency programs. The commenters

made the following points:

Many appreciated the preamble language of the proposed

rule indicating our willingness to consider adopting special rules for

family practice programs.

Many claimed that hospitals and health care delivery

systems would cease residency training for family practice programs if

the proposal went into effect without an exception.

In a family practice program, the resident is the primary

care-giver, and the faculty physician sees the patient only in a

consultative role.

It is beneficial for family practice residents to see

patients alone in order to learn medical decision-making and to

recognize their own limitations.

A resident cannot be educated in the art and practice of

medicine without unsupervised patient contact; the proposed policy

would interfere with the development of a resident's bedside manner.

One family practice resident objected to the low levels of

fee payments for his services under Medicare and Medicaid.

The teaching physician presence requirement intrudes upon

the relationship between the resident and the patient and, in the view

of some, would cause Medicare beneficiaries to lose confidence in the

competence of their resident physician.

The requirement would necessitate the hiring of more

teaching physicians and inhibit the ability to finance family practice

programs through patient care billings.

In many cases, the presence of the teaching physician is

superfluous.

The proposal does not adequately recognize the way

medicine is practiced in this country.

The family practice teaching physician is responsible for

supervising four or more residents and medical students who are seeing

patients simultaneously. Since the teaching physician must remain with

the medical students during patient care visits, he or she does not

have time to be involved in services furnished by the residents.

The family practice preceptors are responsible for signing

the medical records after the residents have dictated their entries

which, in the view of some, guarantees mandatory supervision for each

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