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

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URL: https://www.frixlaw.com/law-library/documents/fr%3AX95-11208

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** December 8, 1995
- **Citation:** 60 FR 63124

## Text

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,

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3AX95-11208. Public record. Not legal advice.