[Federal Register: August 15, 2003 (Volume 68, Number 158)]
[Proposed Rules]               
[Page 49029-49300]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15au03-25]                         
 

[[Page 49029]]

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Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 410 and 414



Medicare Program; Revisions to Payment Policies Under the Physician Fee 
Schedule for Calendar Year 2004; Proposed Rule


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 410 and 414

[CMS-1476-P]
RIN 0938-AL96

 
Medicare Program; Revisions to Payment Policies Under the 
Physician Fee Schedule for Calendar Year 2004

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would refine the resource-based practice 
expense relative value units (RVUs) and make other changes to Medicare 
Part B payment policy. The policy changes concern: Medicare Economic 
Index, practice expense for professional component services, definition 
of diabetes for diabetes self-management training, supplemental survey 
data for practice expense, geographic practice cost indices, and 
several coding issues.
    We are proposing these changes to ensure that our payment systems 
are updated to reflect changes in medical practice and the relative 
value of services. We solicit comments on these proposed policy 
changes.
    We also discuss the non-physician work-pool, the 5-year review of 
anesthesia services, and outpatient therapy services performed 
``incident to'' physician services.

DATES: We will consider comments if we receive them at the address, 
provided below, no later than 5 p.m. on October 7, 2003.

ADDRESSES: In commenting, please refer to file code CMS-1476-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission or e-mail. Mail written comments (one 
original and two copies) to the following address ONLY: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-1476-P, P.O. Box 8013, Baltimore, MD 21244-8013. Please 
allow sufficient time for us to receive mailed comments on time in the 
event of delivery delays.
    If you prefer, you may deliver (by hand or courier) your written 
comments (one original and two copies) to one of the following 
addresses: Room 445-G, Hubert H. Humphrey Building, 200 Independence 
Avenue, SW., Washington, DC 20201, or Room C5-14-03, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and could be considered late.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Gail Addis (410) 786-4522 (for issues 
related to repricing of supplies for practice expense inputs.)
    Pam West (410) 786-2302 (for issues related to Practice Expense 
Advisory Committee (PEAC) recommendations.)
    Jim Menas (410) 786-4507 (for issues related to anesthesia).
    Rick Ensor (410) 786-5617 (for issues related to Geographic Cost 
Price Index (GPCI)).
    Mary Stojak (410) 786-6939 (for issues related to the definition of 
diabetes for diabetes self-management training (DSMT)).
    Shannon Martin (410) 786-7939 (for issues related to rebasing of 
the Medicare Economic Index (MEI)).
    Dorothy Shannon (410) 786-3396 (for issues related to the 
``Incident To'' Therapy Discussion).
    Diane Milstead (410) 786-3355, Latesha Walker (410) 786-1101, or 
Gaysha Brooks (410) 786-3355 (for all other issues).

SUPPLEMENTARY INFORMATION:
    Inspection of Public Comments: Comments received timely will be 
available for public inspection as they are processed, generally 
beginning approximately 3 weeks after publication of a document, at the 
headquarters of the Centers for Medicare & Medicaid Services, 7500 
Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of 
each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view 
public comments, phone (410) 786-7197.
    Copies: To order copies of the Federal Register containing this 
document, send your request to: New Orders, Superintendent of 
Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date 
of the issue requested and enclose a check or money order payable to 
the Superintendent of Documents, or enclose your Visa or Master Card 
number and expiration date. Credit card orders can also be placed by 
calling the order desk at (202) 512-1800 (or toll-free at 1-888-293-
6498) or by faxing to (202) 512-2250. The cost for each copy is $10. As 
an alternative, you can view and photocopy the Federal Register 
document at most libraries designated as Federal Depository Libraries 
and at many other public and academic libraries throughout the country 
that receive the Federal Register.
    This Federal Register document is also available from the Federal 
Register online database through GPO Access, a service of the U.S. 
Government Printing Office. The Web site address is: http://www.access.gpo.gov/nara/index.html
.
    Information on the physician fee schedule can be found on our 
homepage. You can access this data by using the following directions:
    1. Go to the CMS homepage (http://www.cms.hhs.gov).
    2. Place your cursor over the word ``Professionals'' in the blue 
area near the top of the page. Select ``physicians'' from the drop-down 
menu.
    3. Under ``Policies/Regulations'' select ``Physician Fee 
Schedule.''
    Or, you can go directly to the Physician Fee Schedule page by 
typing the following: http://www.cms.hhs.gov/physicians/pfs.
    To assist readers in referencing sections contained in this 
preamble, we are providing the following table of contents. Some of the 
issues discussed in this preamble affect the payment policies but do 
not require changes to the regulations in the Code of Federal 
Regulations. Information on the regulation's impact appears throughout 
the preamble and is not exclusively in section VII.

Table of Contents

I. Background
    A. Legislative History
    B. Published Changes to the Fee Schedule
II. Provisions of the Proposed Regulation
    A. Resource-Based Practice Expense Relative Value Units
    1. Resource-Based Practice Expense Legislation
    2. Current Methodology
    3. Practice Expense Proposals for Calendar Year 2004
    B. Geographic Practice Cost Indices (GPCIs)
    C. Coding Issues
III. Other Issues
    A. Rebasing of the Medicare Economic Index (MEI)
    B. Definition of Diabetes for Diabetes Self-Management Training 
(DSMT)
    C. Outpatient Therapy Services Performed ``Incident To'' 
Physicians Services
    D. Status of Anesthesia Work and 5-Year Review
    E. Payment Policies for Anesthesia Services

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    F. Technical Correction
IV. Collection of Information Requirements
V. Response to Comments
VI. Regulatory Impact Analysis
Addendum A--Explanation and Use of Addendum B
Addendum B--2004 Relative Value Units and Related Information Used 
in Determining Medicare Payments for 2004.
Addendum C--Codes for Which We Received PEAC Recommendations on 
Practice Expense Direct Cost Inputs.
Addendum D--Proposed Changes to Practice Expense Supply Description 
and Pricing.

    In addition, because of the many organizations and terms to which 
we refer by acronym in this proposed rule, we are listing these 
acronyms and their corresponding terms in alphabetical order below:

AMA American Medical Association
BBA Balanced Budget Act of 1997
BBRA Balanced Budget Refinement Act of 1999
CF Conversion factor
CFR Code of Federal Regulations
CMS Centers for Medicare & Medicaid Services
CNS Clinical Nurse Specialist
CPT [Physicians'] Current Procedural Terminology [4th Edition, 2002, 
copyrighted by the American Medical Association]
CPEP Clinical Practice Expert Panel
CRNA Certified Registered Nurse Anesthetist
E/M Evaluation and management
FMR Fair market rental
GAF Geographic adjustment factor
GPCI Geographic practice cost index
HCPCS Healthcare Common Procedure Coding System
HHA Home health agency
HHS [Department of] Health and Human Services
IDTFs Independent Diagnostic Testing Facilities
MCM Medicare Carrier Manual
MedPAC Medicare Payment Advisory Commission
MEI Medicare Economic Index
MGMA Medical Group Management Association
MPFS Medicare Physician Fee Schedule
MSA Metropolitan Statistical Area
NAMCS National Ambulatory Medical Care Survey
PC Professional component
PEAC Practice Expense Advisory Committee
PPS Prospective payment system
RUC [AMA's Specialty Society] Relative [Value] Update Committee
RVU Relative value unit
SGR Sustainable growth rate
SMS [AMA's] Socioeconomic Monitoring System
SNF Skilled Nursing Facility
TC Technical component

I. Background

A. Legislative History

    Since January 1, 1992, Medicare has paid for physicians' services 
under section 1848 of the Social Security Act (the Act), ``Payment for 
Physicians' Services.'' This section provides for three major elements: 
(1) A fee schedule for the payment of physicians' services; (2) limits 
on the amounts that nonparticipating physicians can charge 
beneficiaries; and (3) a sustainable growth rate for the rates of 
increase in Medicare expenditures for physicians' services. The Act 
requires that payments under the fee schedule be based on national 
uniform relative value units (RVUs) based on the resources used in 
furnishing a service. Section 1848(c) of the Act requires that national 
RVUs be established for physician work, practice expense, and 
malpractice expense. Section 1848(c)(2)(B)(ii)(II) of the Act provides 
that adjustments in RVUs may not cause total physician fee schedule 
payments to differ by more than $20 million from what they would have 
been had the adjustments not been made. If adjustments to RVUs cause 
expenditures to change by more than $20 million, we must make 
adjustments to ensure that they do not increase or decrease by more 
than $20 million.

B. Published Changes to the Fee Schedule

    In the July 2000 proposed rule, (65 FR 44177), we listed all of the 
final rules published through November 1999. In the August 2001 
proposed rule (66 FR 40372) we discussed the November 2000 final rule 
relating to the updates to the RVUs and revisions to payment policies 
under the physician fee schedule.
    In the November 2001 final rule with comment period (66 FR 55246), 
we made revisions to resource-based practice expense RVUs; services and 
supplies incident to a physician's professional service; anesthesia 
base unit variations; recognition of CPT tracking codes; and nurse 
practitioners, physician assistants, and clinical nurse specialists 
performing screening sigmoidoscopies. We also addressed comments 
received on the June 8, 2001 proposed notice (66 FR 31028) for the 5-
year review of work RVUs and finalized these work RVUs. In addition, we 
acknowledged comments received in response to a discussion of modifier-
62, which is used to report the work of co-surgeons. The November 2001 
final rule also updated the list of services that are subject to the 
physician self-referral prohibitions in order to reflect CPT and 
Healthcare Common Procedure Coding System (HCPCS) code changes that 
were effective January 1, 2002. All these revisions ensure that our 
payment systems are updated to reflect changes in medical practice and 
the relative value of services. This final rule also conformed our 
regulations to reflect statutory provisions of Medicare, Medicaid, and 
State Child Health Insurance Program (SCHIP) Benefits Improvement and 
Protection Act of 2000 (Pub. L. 106-554) (BIPA) concerning: The 
mammography screening benefit; biennial screening pelvic examinations 
for certain beneficiaries; expanded coverage for screening 
colonoscopies to all beneficiaries; provided for annual glaucoma 
screenings for high-risk beneficiaries; established coverage for 
medical nutrition therapy services for certain beneficiaries; expanded 
payment for telehealth services; required certain Indian Health Service 
providers to be paid for some services under the physician fee 
schedule; and revised the payment for certain physician pathology 
services.
    In the December 31, 2002 final rule with comment period (67 FR 
79966), we refined resource-based practice expense RVUs and made other 
changes to Medicare Part B policy. These included: The pricing of the 
technical component for positron emission tomography (PET) scans, 
Medicare qualifications for clinical nurse specialists, a process to 
add or delete services to the definition of telehealth, the definition 
for ZZZ global periods, global period for surface radiation, and 
application of endoscopic reduction rules for certain codes. In 
addition, this rule: Updated the codes subject to physician self-
referral prohibitions, expanded the definition of a screening fecal-
occult blood test, and modified our regulations to expand coverage for 
additional colorectal cancer screening tests through our national 
coverage determination process. We also made revisions to the 
sustainable growth rate, the anesthesia conversion factor (CF), and the 
work values for some gastroenterologic services. We finalized the CY 
2002 interim RVUs and assigned interim RVUs for new and revised 
procedure codes for calendar year CY 2003, clarified the enrollment of 
therapists in private practice and the policy regarding services and 
supplies incident to a physician's professional services, and made 
technical changes to the definition of outpatient rehabilitation 
services.
    This final rule also revised the regulations at 42 CFR 485.618 to 
allow registered nurses (RNs) to provide

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emergency care in certain critical access hospitals (CAHs) in frontier 
areas (an area with fewer than six residents per square mile) or remote 
locations (locations designated in a State's rural health plan that we 
have approved).
    As required by statute this final rule also announced that the 
physician fee schedule update for CY 2003 was -4.4 percent, the initial 
estimate of the sustainable growth rate (SGR) for CY 2003 was 7.6 
percent, and the CF for CY 2003 was $34.5920, effective March 1, 2003. 
However, on February 28, 2003 (68 FR 9567), after enactment of the 
Consolidated Appropriations Resolution of 2003 (Pub. L. 108-7), we 
published a final rule that revised the estimates used to establish the 
SGRs for fiscal years 1998 and 1999 and announced a 1.6 percent 
increase in the CY 2003 physician fee schedule CF for March 1 to 
December 31, 2003. The CF from March 1 to December 31, 2003 is 
$36.7856. The anesthesia CF for this period is $17.05. All other 
provisions of the December 31, 2002 final rule were unchanged by the 
rule published February 28, 2003.

II. Provisions of the Proposed Rule

    This proposed rule would affect the regulations set forth at Part 
410, Supplementary medical insurance (SMI) benefits and part 414, 
Payment for Part B and other health services.

A. Resource-Based Practice Expense Relative Value Units

1. Resource-Based Practice Expense Legislation
    Section 121 of the Social Security Act Amendments of 1994 (Pub. L. 
103-432), enacted on October 31, 1994, required us to develop a 
methodology for a resource-based system for determining practice 
expense RVUs for each physician's service beginning in 1998. In 
developing the methodology, we were to consider the staff, equipment, 
and supplies used in providing medical and surgical services in various 
settings. The legislation specifically required that, in implementing 
the new system of practice expense RVUs, we apply the same budget-
neutrality provisions that we apply to other adjustments under the 
physician fee schedule.
    Section 4505(a) of the Balanced Budget Act of 1997 (BBA) (Pub. L. 
105-33), enacted on August 5, 1997, amended section 1848(c)(2)(ii) of 
the Act and delayed the effective date of the resource-based practice 
expense RVU system until January 1, 1999. In addition, section 4505(b) 
of the BBA provided for a 4-year transition period from charge-based 
practice expense RVUs to resource-based RVUs.
    Further legislation affecting resource-based practice expense RVUs 
was included in the Medicare, Medicaid and State Child Health Insurance 
Program (SCHIP) Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 
106-113) enacted on November 29, 1999. Section 212 of the BBRA amended 
section 1848(c)(2)(ii) of the Act by directing us to establish a 
process under which we accept and use, to the maximum extent 
practicable and consistent with sound data practices, data collected or 
developed by entities and organizations. These data would supplement 
the data we normally collect in determining the practice expense 
component of the physician fee schedule for payments in CY 2001 and CY 
2002. (In the 1999 final rule (64 FR 59380), we extended, for an 
additional 2 years, the period during which we would accept 
supplementary data.)
2. Current Methodology for Computing the Practice Expense Relative 
Value Unit System
    Effective with services furnished on or after January 1, 1999, we 
established a new methodology for computing resource-based practice 
expense RVUs that used the two significant sources of actual practice 
expense data we have available--the Clinical Practice Expert Panel 
(CPEP) data and the American Medical Association's (AMA) Socioeconomic 
Monitoring System (SMS) data. The methodology was based on an 
assumption that current aggregate specialty practice costs are a 
reasonable way to establish initial estimates of relative resource 
costs for physicians' services across specialties. The methodology 
allocated these aggregate specialty practice costs to specific 
procedures and, thus, can be seen as a ``top-down'' approach.
a. Major Steps
    A brief discussion of the major steps involved in the determination 
of the practice expense RVUs follows. (Please see the November 1, 2001 
final rule (66 FR 55249) for a more detailed explanation of the top-
down methodology.)
    [sbull] Step 1--Determine the specialty specific practice expense 
per hour of physician direct patient care. We used the AMA's SMS survey 
of actual aggregate cost data by specialty to determine the practice 
expenses per hour for each specialty. We calculated the practice 
expenses per hour for the specialty by dividing the aggregate practice 
expenses for the specialty by the total number of hours spent in 
patient care activities.
    [sbull] Step 2--Create a specialty specific practice expense pool 
of practice expense costs for treating Medicare patients. To calculate 
the total number of hours spent treating Medicare patients for each 
specialty, we used the physician time assigned to each procedure code 
and the Medicare utilization data. We then calculated the specialty 
specific practice expense pools by multiplying the specialty practice 
expenses per hour by the total physician hours.
    [sbull] Step 3--Allocate the specialty specific practice expense 
pool to the specific services performed by each specialty. For each 
specialty, we divided the practice expense pool into two groups based 
on whether direct or indirect costs were involved and used a different 
allocation basis for each group.
    (i) Direct costs--For direct costs (which include clinical labor, 
medical supplies, and medical equipment), we used the procedure 
specific CPEP data on the staff time, supplies, and equipment as the 
allocation basis.
    (ii) Indirect costs--To allocate the cost pools for indirect costs, 
including administrative labor, office expenses, and all other 
expenses, we used the total direct costs combined with the physician 
fee schedule work RVUs. We converted the work RVUs to dollars using the 
Medicare CF (expressed in 1995 dollars for consistency with the SMS 
survey years).
    [sbull] Step 4--For procedures performed by more than one 
specialty, the final procedure code allocation was a weighted average 
of allocations for the specialties that perform the procedure, with the 
weights being the frequency with which each specialty performs the 
procedure on Medicare patients.
b. Other Methodological Issues
(i) Non-Physician Work Pool
    For services with physician work RVUs equal to zero (including the 
technical components of radiology services and other diagnostic tests), 
we created a separate practice expense pool using the average clinical 
staff time from the CPEP data and the ``all physicians'' practice 
expense per hour.
    We then used the adjusted 1998 practice expense RVUs to allocate 
this pool to each service. We have removed services from the non-
physician work pool if the requesting specialty predominates 
utilization of the service. Also, for all radiology services that are 
assigned physician work RVUs, we used the adjusted 1998 practice 
expense RVUs for radiology services as an

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interim measure to allocate the direct practice expense cost pool for 
radiology.
(ii) Crosswalks for Specialties Without Practice Expense Survey Data
    Since many specialties identified in our claims data did not 
correspond exactly to the specialties included in the SMS survey data, 
it was necessary to crosswalk these specialties to the most appropriate 
SMS specialty.
(iii) Physical Therapy Services
    Because we believe that most physical therapy services furnished in 
physicians' offices are performed by physical therapists, we 
crosswalked all utilization for therapy services in the CPT 97000 
series to the physical and occupational therapy practice expense pool.
3. Practice Expense Proposals for Calendar Year 2004
a. Non-Physician Work Pool
    The non-physician work pool was created as an interim measure until 
we could further analyze the effect of the top-down methodology on the 
Medicare payment for services that do not have physician work RVUs (see 
the November 1998 final rule (63 FR 58841)).
    In the June 28, 2002 proposed rule (67 FR 43849), we discussed 
alternatives that we have considered to address the non-physician work 
pool issue, including ideas raised by the Lewin Group as well as 
recommendations in a 2001 GAO report. While we have not reached a final 
resolution on how to best address this issue, we are continuing to 
study the alternatives that are available. We also believe that our 
proposal extending the deadline for the submission of supplemental 
survey data (see following discussion) will provide an opportunity for 
specialties whose services are affected by the non-physician work pool 
to submit practice expense data that can be used for determining 
practice expense RVUs under the physician fee schedule. Any 
modifications to the non-physician work pool would be published in 
proposed rulemaking.
b. Supplemental Practice Expense Survey Data
    As required by the BBRA, we established criteria to evaluate data 
collected by organizations to supplement the data normally used in 
determining the practice expense component of the physician fee 
schedule. Due to the time constraints imposed by the statute for 
publication of the physician fee schedule final rule, we have required 
supplementary survey data to be submitted by August 1 to be considered 
for computing practice expense RVUs for the following year. We are 
proposing to change the required submission date to March 1. This would 
allow us to publish our decisions regarding survey data in the proposed 
rule and would provide an opportunity for public comment on survey 
results.
    To continue to ensure the maximum opportunity for specialties to 
submit supplementary practice expense data, we are again proposing to 
extend for an additional 2 years the period for accepting survey data 
that meets the criteria set forth in the November 2000 final rule (as 
modified in the December 31, 2002 final rule). The deadline for 
submission of the supplemental data to be considered in CY 2005 and CY 
2006 are March 1, 2004 and March 1, 2005, respectively.
    In the December 31, 2002 final rule (67 FR 79979), we responded to 
comments expressing concern about the impact of making the technical 
component the difference between the global and professional component 
practice expense RVUs for services that are not affected by the non-
physician work pool calculations. We agreed to a one-year moratorium on 
implementation of the proposed change for pathology services paid under 
the physician fee schedule to allow for a supplemental survey of 
independent laboratories. Consistent with the change to making the 
survey deadline March 1, we are considering whether to extend the 
moratorium by one additional year. By extending the moratorium, we can 
show the impact of the independent laboratory survey in the 2004 
proposed rule and allow public comment on its results prior to making 
changes to the practice expense RVUs on January 1, 2005. We welcome 
public comment on whether we should adopt the proposed change for 2004 
in this year's final rule or extend the moratorium by 1 year.
c. Oncology Survey Data
    In the December 31, 2002 final rule (67 FR 79973), we indicated 
that the American Society of Clinical Oncology (ASCO) submitted a 
supplemental practice expense survey. Our contractor, the Lewin Group, 
raised specific concerns to us about the survey results. Consequently, 
we did not incorporate the survey into the practice expense methodology 
but indicated that we would further examine its results with the Lewin 
Group and confer with ASCO about our concerns. We have discussed the 
oncology survey together with the Lewin Group and ASCO. These 
discussions were useful in providing us with more information upon 
which to make a final decision regarding incorporation of the oncology 
survey into the practice expense methodology. We expect to make our 
decision known in a subsequent proposed rule that will address Medicare 
payment for drugs currently paid based on 95 percent of the average 
wholesale price.
d. Practice Expense for a Professional Component Service
    Since the inception of the resource-based practice expense 
methodology, we have assigned all staff equipment and supply costs for 
services with professional and technical components (PC and TC) to the 
technical portion of the service. We have done this because we believe 
that generally all of these direct cost inputs are associated with 
obtaining the diagnostic information and there would be no direct costs 
associated with the physician interpretation. However, we now believe 
that there may be limited exceptions where it is appropriate to assign 
direct inputs to a PC service. For instance, the Practice Expense 
Advisory Committee (PEAC) recommended that we include clinical staff 
time in certain codes that have both a PC and TC component for 
activities such as scheduling the procedure and educating the patient 
when the procedure is done in the facility setting. We accepted these 
recommendations but, because the practice expense methodology currently 
does not assign direct inputs to PC services and the TC is not paid in 
the facility setting, these procedures were not credited with the 
recommended practice expense inputs.
    We propose to modify the practice expense methodology to allow 
direct inputs to be added to PC services when these inputs are clearly 
associated with the professional service, including when the PEAC makes 
such recommendations. We are proposing to add the PEAC recommended 
staff times to the PC of the following cardiac services: CPT codes 
93508, 93510, 93511, 93514, 93524, 93526, 93527, 93528, 93529, 93530, 
93531, 93532, 93533 and 93624. The practice expense RVUs for these 
codes will increase slightly from this change resulting in minor 
reductions in practice expense RVUs for some other services performed 
by cardiologists. There will be no impact on the practice expense RVUs 
for any other specialty.
e. Utilization Data
    We use Medicare utilization data in the development of specialty-
specific practice expense RVUs that are then weight averaged to 
determine a single practice expense RVU per code. Prior to

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2003, we used the most recent complete year of utilization data to 
determine the practice expense RVUs. For instance, we determined the 
2001 practice expense RVUs using Medicare utilization data from 1999 
for most procedure codes. However, if a procedure code was new in 2000, 
we did not have any 1999 utilization data to determine its 2001 
practice expense RVU and could not use specialty-specific data until 
2000 utilization data was available to us. In some cases, the new code 
was clearly related to an older code or codes and we were able to use 
an estimation of the probable specialty utilization for 2001 until 
actual specialty-specific utilization was available for 2002. Where we 
were not able to determine the probable specialty-specific utilization 
we assigned the ``all physician'' average practice expenses to the 
service until we obtained specialty-specific utilization. Thus, in this 
case, we used the ``all physician average'' to determine the code's 
2001 practice expense RVU and specialty-specific utilization to 
determine the 2002 practice expense RVU.
    In the December 31, 2002 final rule (67 FR 79982), we adopted a 
policy of using the 1997 through 2000 Medicare utilization in the 
practice expense methodology. For new codes created since 2000, there 
are no Medicare utilization data in the 1997 through 2000 period upon 
which to determine specialty-specific practice expenses. We are 
proposing to follow a similar practice to the one described above and 
use specialty-specific Medicare utilization data for codes created 
after 2000 at the first opportunity they become available to us. 
Therefore, we are proposing to use 1997 through 2000 Medicare 
utilization data for all codes that were in existence at that time. If 
a code did not exist during the 1997 through 2000 period, we propose 
using the first available utilization data for the code in order to 
develop the practice expense RVU. Since we will not have any 
utilization data at the time we first establish practice expense RVUs 
for a new code, we propose that we continue, whenever possible, to make 
an assumption about the specialty that will likely provide the service 
or to use the ``all physician'' average when we do not have sufficient 
information to assign any given specialty. We will make available on 
the CMS web site (http://cms.hhs.gov) files containing the data that we 
will use in determining the proposed rule practice expense RVUs. We 
propose in each year's proposed rule to substitute actual for estimated 
utilization once the data become available. For instance, in this 
proposed rule, we will substitute actual 2002 utilization data for 
estimated 2002 utilization data to determine the 2004 practice expense 
RVUs for codes that were new in 2002. Practice expense RVUs may change 
as we make updates to the utilization data that we use in the practice 
expense methodology. We encourage the AMA's Specialty Society Relative 
Value Update Committee (RUC) and other interested parties to provide 
information on the specialties that will likely perform a new service 
to minimize the potential changes to the practice expense RVUs that 
will occur when we substitute actual for estimated utilization.
    For the proposed rule, the utilization data from the prior year are 
96 percent complete. In the past, we used 100 percent complete data 
from a prior year in the proposed rule (for example, we used 2000 
utilization data to simulate impacts for the June 28, 2002 proposed 
rule) and did not use the preceding year's utilization data until the 
final rule (for example, we used 2001 utilization data to simulate 
impacts for the December 31, 2002 final rule). Beginning with this 
year's proposed rule, we are using the prior year's utilization data 
for developing practice expense RVUs and simulating impacts. Because 
the utilization file that we are using for the proposed rule is only 96 
percent complete, there may be minor changes to the payment impacts and 
practice expense RVUs between the proposed rule and the final rule for 
which we will use 100 percent complete data from the prior year.
f. Practice Expense Advisory Committee (PEAC)
Recommendations on CPEP Inputs for 2004
    The PEAC, a subcommittee of the RUC, has, since 1999, been 
providing us with recommendations for refining the direct practice 
expense inputs (clinical staff, supplies, and equipment) for existing 
CPT codes. In the past, our actions on these PEAC recommendations have 
been incorporated into the physician fee schedule final rule and have 
been used as interim values for services provided in the following 
calendar year. We have accepted comments on these refinements and 
addressed them in rulemaking the following year. This year we are 
including the PEAC recommendations in the proposed rule, which will 
enable specialty groups to assess the impact of these changes on their 
services and make comments on the recommendations before the final 
rule.
    These PEAC recommendations are the result of meetings held in 
September of 2002 and January 2003 and account for approximately 772 
codes from many specialties. (A list of these codes can be found in 
Addendum C.) The PEAC has also submitted recommendations on the 
refinements to the clinical staff time for all 90-day global services 
(accounting for a further 3,604 CPT codes).
    This massive refinement was possible because the PEAC adopted a 
standardized approach to the refinement of the clinical staff times for 
90-day global codes. The PEAC has recommended that the following 
standard clinical staff times be applied to all 90-day codes, except 
for those in which the specialty argued for an exception to the 
standard:
    [sbull] Pre-service time--35 minutes of pre-service clinical staff 
time in the office and 60 minutes for services performed in the 
facility setting;
    [sbull] Discharge day management time--6 minutes of clinical staff 
time if the procedure is performed predominantly in the outpatient 
facility setting and 12 minutes if performed predominantly in the 
inpatient setting. (This standard is also recommended for all of the 
10-day global procedures); and
    [sbull] Post-service office visit time--equal to the clinical staff 
times associated with the evaluation and management visit codes 
assigned to each service.
    Several specialties, including the neurosurgeons/spine surgeons, 
thoracic surgeons and colorectal surgeons requested and received 
increased pre-service times for some of their services. There were also 
a few services that are usually performed on an emergent basis when the 
pre-service time was reduced or omitted altogether. We believe that the 
standards recommended by the PEAC are appropriate and that the 
exceptions to these standards are also reasonable. Therefore, we are 
proposing to use the PEAC's recommendations for the clinical staff time 
for these global codes.
    In addition, the PEAC convened a workgroup to make recommendations 
on the refinement of all the 116 remaining evaluation and management 
codes. These are important achievements that have significantly 
advanced the pace of the refinement process. A total of 5358 codes have 
been refined; these codes represent 87 percent of physician fee 
schedule dollars. We greatly appreciate the dedication and hard work of 
the specialty societies and the AMA that are helping to ensure that 
this refinement process is successful.

[[Page 49035]]

    We have reviewed the submitted PEAC recommendations and propose to 
accept them. The complete PEAC recommendations and the revised CPEP 
database can be found on our web site. (See the Supplementary 
Information section of this proposed rule for directions on accessing 
our web site.)
g. Repricing of Clinical Practice Expense Inputs--Supplies
    We use the practice expense inputs (the clinical staff, supplies, 
and equipment assigned to each procedure) to allocate the specialty-
specific practice expense cost pools to the procedures performed by 
each specialty. The costs of the original inputs assigned by the CPEP 
were determined by our contractor, Abt Associates, based primarily on 
1994 and 1995 pricing data from supply catalogs. In addition, for many 
items on the equipment and supply list, the associated costs were based 
on the recommendations of a CPEP panel member, rather than on actual 
catalog prices. Subsequent to the CPEP panels, equipment and supply 
items have also been added to the CPEP data, with the costs of the 
inputs provided by the relevant specialty society.
    In the August 2, 2001 proposed rule (66 FR 40378), we proposed 
updates and revisions to the clinical staff salary data which were 
finalized in the final rule published November 1, 2001 (66 FR 55255). 
In that final rule, we also indicated that in future rulemaking we 
would be proposing updates to the supply and equipment inputs that are 
used in the CPEP database. We, therefore, contracted with a consultant 
to assist us in obtaining the current price for each supply item in our 
CPEP database. The consultant has been able to determine the current 
prices for most of the supply inputs and has submitted documentation 
for the proposed new pricing from vendor catalogs or websites. Whenever 
possible, multiple sources were obtained for frequently used supplies 
so that a typical price could be determined.
    In addition, we asked the consultant to help identify and clarify 
those supplies for which the original descriptions in the CPEP database 
are too general to price (for example ``laser'' or ``antigen'') or are 
otherwise unidentifiable. Our consultant worked closely with the 
specialty societies to ensure that accurate information was obtained in 
identifying as many of these supplies as possible.
    Addendum D contains the proposed new unit prices for supply items 
when current pricing was obtained, as well as new descriptions when 
needed. A more detailed spreadsheet can be found on our Web site, 
(http://www.cms.hhs.gov/physicians/pfs), that contains additional 
information regarding the sources used to price each item.
    There are items that have either not yet been identified or for 
which pricing information has not yet been found. These supply items 
are included in Table 1 below. In this table we have identified the 
supply code (if assigned), the existing item description, unit and 
price, the procedures or specialties associated with the item, as well 
as the proposed new description and standardized unit of use. We have 
also identified items for deletion from the database. We are requesting 
that commenters, particularly the relevant specialty groups, provide us 
with the needed pricing information with appropriate documentation. 
Whenever possible, multiple sources of documentation should be provided 
so that a typical price can be determined. If we are not able to obtain 
any verified pricing information for an item, we may eliminate it from 
the database.

BILLING CODE 4120-01-P

[[Page 49036]]

[GRAPHIC] [TIFF OMITTED] TP15AU03.005


[[Page 49037]]


[GRAPHIC] [TIFF OMITTED] TP15AU03.006


BILLING CODE 4120-01-C

[[Page 49038]]

    In addition to reviewing and updating the cost information for 
supplies in the database, our contractor also recommended database 
revisions to provide uniformity and consistency in the CPEP supply 
database. All of the following recommendations are noted in Addendum D:
    [sbull] Assignment of supply categories. In the original CPEP data, 
a number was assigned to each supply. The contractor has recommended 
that each supply item also be assigned a ``category'' to allow for 
easier selection and sorting of items. We agree and are proposing that 
supplies be assigned to one of the following 14 categories:
Accessory, Diagnostics;
Accessory, Equipment;
Accessory, Procedure;
Booklets/Forms;
Cutters, Closures/Cautery;
Gown, Drape;
Hypodermic/IV;
Infection Control;
Kit, Pack, Tray;
Lab;
Office, Grocery;
Pharmacy, NonRx;
Pharmacy, Rx; and
Wound Care, Dressings.

    These categories could also be used to establish a new numbering 
system for supplies. We would assign a letter to each supply category 
and use this in conjunction with a number (000 through 999) to identify 
each supply. This would enable specialty groups to identify more easily 
whether a supply has already been included in the CPEP database and 
would help ensure uniformity in the items used for calculating practice 
expenses. If we proceed in the final rule with this proposed method for 
categorizing supplies, we will assign new identifying numbers to each 
supply input item and these will be available on our website.
    [sbull] Consolidation/standardization of item descriptions.
    When items appear to be duplicative, we are proposing to combine 
the items. For example, ``Mayo stand cover'' and ``drape, sterile 
Mayo'' have both been changed to ``drape, sterile, for Mayo stand''. We 
also have attempted to better describe the supply items in a way that 
will make identification easier, using a key first word when possible. 
For example, all catheters are described as ``catheter, * * *'', all 
needles are described as ``needle * * *.'' In addition, references to 
proprietary or trademark names for multisource items have been included 
as parenthetical references (for example, ``Polibar TM'' is 
renamed barium suspension ``(Polibar TM ).''
    [sbull] Standardization of unit descriptions.
    The current CPEP database contains over 72 unit descriptions 
associated with supplies (for example, item, gram, and cup). To provide 
consistency and ensure that inputs in the database accurately reflect 
the quantity of an item used, we are proposing to standardize the unit 
description of items. If an item is intended for single use, even if it 
is not completely used, we propose to identify this by indicating the 
item size followed by ``uou'' (unit of use). For example ``soap bath'' 
has been renamed ``bath soap (one bar uou)'' and ``bacitracin unit dose 
pack, 9g'' has been renamed ``bacitracin oint (0.9 gm uou)''.
    We welcome any comments on the proposed pricing and all other 
proposed revisions. To help us evaluate the information provided, 
comments should include documentation such as information from a supply 
catalog or website or from a current invoice.
h. Miscellaneous Practice Expense Issues

Hyperbaric Oxygen Services

    We have received a request from a freestanding hyperbaric oxygen 
center to price the service in the office setting, so that those 
providing this service in a nonfacility can receive an appropriate 
payment. Therefore, we are proposing to assign on an interim basis the 
following practice expense inputs to CPT code 99183, Physician 
attendance and supervision of hyperbaric oxygen therapy, per session:
    Staff: Respiratory Therapist for 135 minutes (for a 2 hour 
treatment).
    Supplies: Minimum Visit Supply Package, 180 liters of oxygen, 187 
cubic feet of air.
    Equipment: Hyperbaric chamber.
    We will request that the Practice Expense Advisory Committee review 
these inputs at a meeting in the near future.

Maxillofacial Prosthetics PE/hour

    In the November 2, 1998 final rule (63 FR 58824), we created a 
special practice expense pool for maxillofacial prosthetics (CPT codes 
21076 through 21087) using the ``all physician'' practice expense per 
hour. Because the practice expense survey submitted in 1998 by the 
American Academy of Maxillofacial Prosthetics (AAMP) differed 
significantly in format and content from the SMS survey, we were not 
able to use the submitted data to calculate a practice expense per hour 
for maxillofacial prosthetics. AAMP has contended that the ``all 
physician'' rate underestimates the high costs for the staff, supplies 
and equipment associated with the provision of maxillofacial prosthetic 
services.
    We have asked our contractor, The Lewin Group, to analyze the 
submitted survey data to determine if the data would or would not 
support a change in the crosswalk for this specialty. The Lewin Group's 
finding suggests, ``the all-physician average may underestimate the 
practice expense per hour for maxillofacial prosthodontists.'' Based on 
the Lewin Group's finding, we reviewed the Medicare utilization of the 
maxillofacial prosthetics codes. Oral surgeons (specialty code 19) and 
maxillofacial surgeons (specialty code 85) overwhelmingly provide these 
services. We believe the practice expenses for these practitioners are 
likely to be similar to otolaryngologists since these physicians also 
provide office procedures affecting the head and face. We are proposing 
to eliminate the special practice expense pool for procedure codes 
21076 through 21087 and use otolaryngology as the crosswalk for oral 
surgeons and maxillofacial surgeons as a more appropriate approximation 
of the specialties' practice expense per hour. This proposal will 
increase payment for the maxillofacial prosthetics and other services 
that are predominantly billed by oral and maxillofacial surgeons. There 
will be no impact on payment for services provided by any other 
specialty from this change.

Holter Monitoring Codes

    A representative of an independent diagnostic testing facility has 
communicated to us that their review of the practice expense inputs for 
the holter monitoring codes, CPT 93225, 93226, 93231, and 93232 has 
revealed the inclusion of items that are not needed to perform these 
services. The correspondent suggested the following deletions:
    [sbull] For CPT codes 93225 and 93231 delete the ECG electrodes and 
laser paper, as well as the electric bed, computer and holter monitor; 
and
    [sbull] For CPT codes 93226 and 93232 delete the razor, nonsterile 
gloves, alcohol swab and tape, as well as the electric bed and exam 
table.
    We agree that these revisions appear reasonable and will make the 
above deletions on an interim basis until the PEAC can review these 
codes. It should be noted these codes are currently in the nonphysician 
work pool and that the CPEP data is not currently used to calculate 
their practice expense RVUs. Therefore, these changes will not at this 
time have any effect on the payment for these codes.

[[Page 49039]]

B. Geographic Practice Cost Index Changes

1. Background
    The Act requires that payments vary among Medicare physician fee 
schedule (MPFS) areas according to the extent that resource costs vary 
as measured by the Geographic Practice Cost Indices (GPCIs). In 
general, the MPFS areas that existed under the prior reasonable charge 
system were retained under the MPFS from calendar years 1992 through 
1996. We implemented a comprehensive revision in MPFS payment areas 
(localities) in 1997, reducing the number of localities from 210 to 89. 
Thirty-four states have a single statewide locality. In contrast, under 
the hospital inpatient prospective payment system (IPPS), costs are 
adjusted across more than 350 metropolitan statistical areas (MSAs).
    A detailed discussion of the MPFS payment localities can be found 
in the July 2, 1996 proposed rule (61 FR 34615) and the November 22, 
1996 final rule (61 FR 59494).
2. Implication of GPCIs for Rural Areas
    The GPCIs do not affect total national payments under the MPFS, but 
instead distribute payments among areas according to area cost 
differences. In general, the data show that urban areas usually have 
higher costs, while rural areas have generally lower costs. Thus, on 
average the costs associated with operating a private medical practice, 
as measured by factors such as wages and rent, are higher in urban 
areas. Alternatively, the average costs associated with the operation 
of a private medical practice in a rural area are lower. Since the 
costs associated with operating a private medical practice are 
measurably different based upon geographic location, varying payments 
according to the GPCIs will benefit lower cost areas, usually rural, 
since the law provides that only one-quarter of the area cost 
difference in physician work, the largest of the three fee schedule 
GPCI components, be recognized. We believe this was an attempt by the 
Congress to shift payments to rural areas. Thus, about 40 percent of 
MPFS payments (.75 x .52) are by statute not adjusted for area cost 
differences. Additionally, one component of the practice expense GPCI, 
supplies, equipment and other, is also, by statute, not adjusted for 
area cost differences. Supplies, equipment and other represent about 13 
percent of total physician resource costs. This means that, 
effectively, there is a nationwide MPFS for about 53 percent of the 
average physician payment (40 percent physician work, 13 percent 
supplies, equipment and other). That is, only about 47 percent of 
overall physician payment is adjusted for area resource cost 
differences. In addition, 34 states are statewide payment localities in 
which all physicians, whether urban or rural, are paid the same. All of 
these factors shift payments from higher cost, usually urban, areas to 
lower cost, usually rural areas.
3. GPCI Composition
    Section 1848(e)(1)(C) of the Act requires us to review, and if 
necessary, adjust the GPCIs 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 adjustment if more than 1 year has 
elapsed since the last GPCI revision. The GPCIs were first implemented 
in 1992. The first review and revision was implemented in 1995, the 
second review was implemented in 1998, and the third review was 
implemented in 2001. The next GPCI review and revision is scheduled for 
implementation in 2004. However, as will be discussed in more detail, 
because the work and practice expense GPCIs rely primarily on special 
tabulations of U.S. Census data not yet available, review and revision 
of only the malpractice GPCI component will be implemented in 2004. 
Review and revision of the work and practice expense GPCIs will be 
implemented in 2005.
    Currently, only one data source is available for the practice 
expense GPCI (relative cost of office rent space collected by the 
Department of Housing and Urban Development (HUD)). Since we have not 
received the primary data upon which practice expense GPCIs are 
calculated and since the office rent component of the practice expense 
GPCI has proven not to be very substantial in past GPCI updates (it 
accounts for approximately 11.0 percent of the total GPCI calculation 
and is phased in over a two year period), we have decided not to revise 
the practice expense GPCIs for 2004. The work GPCI relies solely on 
data collected from the 2000 U.S. Census that is not yet available, so 
we are not able to propose updates to the work GPCI in this proposed 
rule.
    Although there are general discussions of both the background and 
composition of all three GPCI components in this proposed rule, a 
detailed discussion of only the 2004 revised malpractice GPCI is 
included in this proposal while a detailed discussion of the revised 
work and practice expense GPCIs will be included in the 2005 proposed 
rule.
4. Development of the Geographic Practice Cost Indices
    The GPCIs were developed by a joint effort of the Urban Institute 
and the Center for Health Economics Research under contract to CMS. The 
resource inputs and their weights are obtained from the AMA's 
Socioeconomic Characteristics of Medical Practices Survey. Indices were 
developed that measured the relative cost differences among areas 
compared to the national average in a ``market basket'' of goods. In 
this case, the market basket consists of the resources involved in 
operating a private medical practice. The resource inputs are physician 
work or net income; employee wages; office rents; medical equipment, 
supplies, other miscellaneous expenses; and malpractice insurance. 
Employee wages, rents, and miscellaneous expenses are combined to 
comprise the practice expense component of the GPCI. Table 2 below 
illustrates the cost share weights that have been utilized for each 
GPCI update:

                                               Table 2.--GPCI (Medicare Economic Index) Cost Share Weights
--------------------------------------------------------------------------------------------------------------------------------------------------------
                     Expense category                           1992-94*          1995-97**          1998-00**          2001-03***        2004-07****
--------------------------------------------------------------------------------------------------------------------------------------------------------
Physician Earnings.......................................               54.2               54.2               54.2               54.5             52.466
Practice Expenses........................................               40.2               41.0               41.0               42.3             43.669
    Employee Wages.......................................               15.7               16.3               16.3               16.8             18.654
    Rents................................................               11.1               10.3               10.3               11.6             12.209
    Equip., Supplies, Other..............................               13.4               14.4               14.4               13.9             12.807
Malpractice Insurance....................................                5.6                4.8                4.8                3.2              3.865
                                                          --------------------
                                                                       100.0              100.0              100.0              100.0           100.000
--------------------------------------------------------------------------------------------------------------------------------------------------------
*Weights from 1987 AMA survey.

[[Page 49040]]


**Weights from 1989 AMA survey.
***Weights from 1997 AMA survey
****Weights from Physician Socioeconomic Statistics, 2000-2002 Edition (SMS Survey), Physician Socioeconomic Statistics, 2003 Edition (PCPS Survey),
  Center for Health Policy Research, American Medical Association; 2003 Employment Cost Index, U.S. Department of Labor, Bureau of Labor Statistics;
  U.S. Department of Commerce, Bureau Economic Analysis 1997 Benchmark Input Output Tables, and U.S. Department of Commerce, Bureau of the Census, 2002
  Current Population Survey. (See section III.A. Rebasing and Revising of the Medicare Economic Index.)

    The Medicare economic index (MEI) is a measure of the average 
increases in the price of inputs used in operating a private medical 
practice and is used in the annual update of the MPFS CF. Because the 
GPCIs and the MEI use the same resource inputs to measure the costs of 
a private medical practice (the GPCIs measure relative costs among 
areas while the MEI measures the national average rate of increase in 
prices), as in the past, the same weights will be used for both the MEI 
and the GPCIs.
    Once the components and their weights were determined, we had to 
find data sources that were widely and consistently available to 
measure costs in all MPFS payment areas. After examining many sources, 
the following proxies were selected as the best available sources for 
measuring each component of the original 1992 through 1994 GPCIs:
    [sbull] Physician work--The median hourly earnings, based on a 20 
percent sample of 1980 census data, of workers in six professional 
specialty occupation categories (engineers, surveyors, and architects; 
natural scientists and mathematicians; teachers, counselors, and 
librarians; social scientists, social workers, and lawyers; registered 
nurses and pharmacists; writers, artists, and editors) with 5 or more 
years of college. Adjustments were made to produce a standard 
occupational mix in each area. The actual reported earnings of 
physicians were not used to adjust geographical differences in fees 
because these fees are, in large part, the determinants of the 
earnings. We believe that the earnings of physicians will vary among 
areas to the same degree that the earnings of other professionals vary.
    [sbull] Employee wages--Median hourly wages of clerical workers, 
registered nurses, licensed practical nurses, and health technicians 
were also based on a 20 percent sample of 1980 census data.
    [sbull] Office rents--Residential apartment rental data produced 
annually by the Department of Housing and Urban Development (HUD) were 
used because there were insufficient data on commercial rents across 
all physician fee schedule areas.
    [sbull] Equipment, supplies, other expenses--The Urban Institute 
and the Center for Health Economics research assumed that a national 
market represents this component and that costs do not vary appreciably 
among areas. This component's index is 1.000 for all areas to indicate 
no variation from the national average.
    [sbull] Malpractice--Premiums in 1985 and 1986 for a mature 
``claims made'' policy (a policy that covers malpractice claims made 
during the covered period) providing $100,000 to $300,000 of coverage 
were used. Adjustments were made to incorporate the costs of $1 million 
to $3 million coverage and mandatory patient compensation fund (PCF) 
requirements. Some States legally require physicians to join a PCF that 
provides coverage for catastrophic claims. Premium data were collected 
for physicians in three risk classes: low-risk (general practitioners 
who do not perform surgery), moderate risk (general surgeons), and 
high-risk (orthopedic surgeons).
    The areas selected for measurement purposes were the MSAs. Non-MSA 
areas within a State were aggregated into one residual area. Using MSAs 
for measurement satisfied our criteria to have (1) areas in which 
resource input prices were homogenous, and (2) areas of a large enough 
size so that market areas are self-contained to minimize border 
crossing; that is, physicians would probably not move their offices a 
few miles to secure higher payments and patients who would tend to 
receive services within their area.
    The Act requires, however, that the GPCIs reflect cost differences 
among MPFS payment areas. Thus, it was necessary to map Medicare 
localities to the MSA and non-MSA aggregation of GPCI data. Where 
localities crossed MSA boundaries, MSA indices were converted to 
Medicare locality indices by population weights.
    Detailed discussions of the methodology and data sources of the 
1992 through 1994 GPCIs can be obtained by requesting studies from the 
National Technical Information Service by calling 1-800-553-NTIS, or, 
for residents of Springfield, Virginia, (703) 487-4650. The studies are 
as follows:
    [sbull] The Urban Institute report ``The Geographic Medicare Index: 
Alternative Approaches,'' NTIS PB89-216592;
    [sbull] The supplement to ``The Geographic Medicare Index: 
Alternative Approaches,'' NTIS PB91-113506. This was published in the 
Federal Register in the September 4, 1990 notice (55 FR 36238) for the 
model fee schedule; and
    [sbull] The Urban Institute report, ``Refining the Malpractice 
Geographic Practice Cost Index,'' February 1991, NTIS PB91-155218. The 
related diskette is NTIS PB91-507491. This is the final version of the 
1992 through 1994 GPCIs as published in the Federal Register in the 
November 25, 1991 final rule (56 FR 59785).
5. Revised 1995 Through 1997 Geographic Practice Cost Indices
    The main criticism of the original GPCIs, that existed from 1992 
until 1994, was that they were outdated because they were based on old 
data; for example, 1980 census data and 1985 and 1986 malpractice 
premium data, was the most recent data available when the GPCIs were 
established. The revised 1995 through 1997 GPCIs were based on the most 
current data available when they were developed in 1993 and 1994. We 
also made some minor changes from the original GPCI methodology in 
calculating some of the revised 1995 through 1997 indices.
    One methodological change was made that applied across all indices. 
As mentioned earlier, under the original GPCIs, where Medicare payment 
localities crossed MSA boundaries, MSA indices were converted to 
locality indices by population weights. Medicare expenditure weights 
were not used because the expenditures under the reasonable charge 
system contained large differences unrelated to actual resource cost 
differences among areas. In calculating the revised GPCIs, where 
payment localities crossed MSA boundaries, locality indices were 
calculated by weights based on full MPFS RVUs, which reflect resource 
cost differences among areas. Full MPFS RVUs were used rather than 
actual 1993 payments because 1993 fee schedule payments still reflected 
some reasonable charge payment levels. The advantages of RVU weighting 
are (1) the GPCIs will more closely reflect physician practice costs in 
the area where the services are provided rather than where the 
population lives, and (2) budget neutrality is preserved when we 
combine multiple payment localities into larger areas, such as 
statewide localities.

[[Page 49041]]

a. Work Geographic Practice Cost Indices
    Data from the 20 percent sample of census data of median hourly 
earnings for the same six categories of professional specialty 
occupations as used in the 1992 through 1994 work GPCIs were used in 
calculating the 1995 through 1997 work GPCIs. The 1992 through 1994 
work GPCIs were calculated using 1980 census data of earnings for 
professionals with 5 or more years of college. That sample was no 
longer available with the 1990 census. The 1990 census educational 
classifications are by highest degree earned, rather than the 1980 
census classification by years of schooling. Thus, it was not possible 
to obtain earnings data exactly comparable to the 1980 data.
    For 1990, data were available for all-education and advanced-degree 
samples, but not for 5 or more years of college. We elected to use the 
all-education sample because its larger sample sizes made it more 
stable and accurate in the less populous areas. Although it could be 
argued that physicians' earnings might more closely approximate the 
earnings of professionals with advanced degrees, the differences 
between the all-education and advanced-degree indices were negligible 
in all but a few of the smallest localities. We believed that the small 
sample sizes of advanced-degree occupations in these small localities 
would produce inaccurate results.
    The 1992 through 1994 work GPCIs used metropolitan-wide median 
wages for each county within an MSA. That is, all counties within an 
MSA were assigned the MSA-wide median wage even if there were wage 
variations within the MSA. We believed that this was appropriate for 
all but Consolidated Metropolitan Statistical Areas (CMSAs), the 
largest of the MSAs, such as New York. In these CMSAs, we replaced 
metropolitan-wide earnings with county-specific earnings. We believed 
this change was appropriate because costs were, in fact, higher in 
central city areas (for example, Manhattan and San Francisco) than in 
the rest of the CMSA. County earnings were a better account of the cost 
variation within these large metropolitan areas.
b. Practice Expense Geographic Practice Cost Indices
    (1) Employee Wage Indices.
    Data from the 20 percent sample of census data of median hourly 
earnings for the same categories of medical and clerical occupations 
used in the 1992 through 1994 practice expense GPCIs were also used in 
the 1995 through 1997 practice expense GPCIs. The 1995 through 1997 
practice expense GPCIs used 1990 rather than 1980 census data. As with 
the work GPCIs, county level data were used for CMSAs to better reflect 
the cost variations within these large metropolitan areas.
    (2) Rent Indices.
    As with the original rent indices, the HUD fair market rental (FMR) 
data for residential rents were again used as the proxy for physician 
office rents. The 1995 through 1997 practice expense GPCIs reflect 1994 
HUD FMRs. Like the work GPCI and the employee wage index of the 
practice expense GPCIs, county level data were used in CMSAs to 
recognize the variations within the CMSA.
    The major criticism of the rent indices was that residential rather 
than commercial rent data were used. As mentioned earlier, for 
constructing the GPCIs we needed data that were widely and consistently 
available across all physician fee schedule areas.
    As with the original GPCIs, we again searched for private sources 
of commercial rent data that were widely and consistently available. 
The private sources we found were not adequate. None of the sources 
collected data for non-metropolitan areas, nor did any collect data for 
all metropolitan areas. The sources did not reflect the average 
commercial space in the area, but rather the particular type of space 
most relevant to the needs of a particular source's clients. In 
addition, the sample sizes were small. A comparison of the average 
rental for any particular city showed significant variation depending 
upon the source. Also, the private commercial rent data tended to be 
for very high priced real estate of the type likely to be used by large 
institutions such as banks, insurance companies, or financial firms and 
not for the type of office space most likely used by physicians.
    Among the sources of commercial rent data that were available, the 
most promising were data from the Building Owners and Managers 
Association, the General Services Administration, and the U.S. Postal 
Service. These data were analyzed in depth. We did not use data from 
the Building Owners and Managers Association and the General Services 
Administration because of poor geographic coverage, especially outside 
of large metropolitan areas. That is, data were not widely and 
consistently available for all physician fee schedule areas. The U.S. 
Postal Service data had much better geographic coverage, but sample 
sizes in many areas were unacceptably small and could have led to 
erroneous results.
    No acceptable national commercial rent data were readily available 
for physician office rents. Thus, some proxy needed to be used for this 
portion of the index. In addition, commercial rent data were not 
available for all areas from published statistical sources. We believed 
that the HUD FMR data remained the best available data for constructing 
the office rental index. HUD FMR data were available for all areas, 
were updated on an annual basis, and were consistent among areas and 
from year to year. Moreover, we believed that physicians frequently 
locate in areas and office space that are residential rather than 
commercial, for example, in apartment complexes and small strip 
commercial centers adjacent to residential areas. Residential rents 
may, in fact, be a better measure of the differences among areas in the 
physician office market than a general commercial rental index.
    (3) Medical Equipment, Supplies, and Miscellaneous Expenses.
    Consistent with the original 1992 through 1994 update for medical 
equipment, supplies, and miscellaneous, this index assumes a national 
market in which input prices do not vary among geographic areas. We 
were unable to find any data sources that demonstrated price 
differences by geographic area. Anecdotal and interview data with 
suppliers and manufacturers were inconclusive. While some price 
differences may exist, we believed they were more likely to be based on 
volume discounts rather than on geographic areas. Generally, it appears 
that manufacturers' prices do not vary among areas except for shipping 
costs. Since manufacturers and suppliers are located all over the 
country, shipping costs do not vary significantly.
c. Malpractice Geographic Practice Cost Indices
    Again, malpractice premium data for a $1 million to $3 million 
mature ``claims made'' policy were collected, with mandatory Patient 
Compensation Funds (PCFs) considered. Some States have legally required 
physicians to join PCFs that provide coverage for catastrophic claims. 
The PCF charges a premium or surcharge just as any other insurer. 
However, more recent and more comprehensive malpractice insurance data 
were used in calculating the 1995 through 1997 malpractice GPCIs. The 
1995 through 1997 malpractice GPCIs were based on 1990 through 1992 
malpractice premium data. Since malpractice premiums may change

[[Page 49042]]

significantly from year to year, we decided to use the most recent 3-
year average available rather than just the most recent single year to 
smooth out this volatility and present a more accurate indication of 
malpractice premium trends over time.
    We collected data on more specialties and from more insurers. We 
collected data on 20 specialties, rather than on only 3 as in the 1992 
through 1994 malpractice GPCIs. The 1992 through 1994 malpractice GPCI 
data were largely drawn from a single nationwide insurer (St. Paul Fire 
and Marine) and were supplemented by several State-specific carriers in 
States in which St. Paul did not offer coverage. Subsequent analyses 
suggest that these data may not be representative of insurers operating 
in many States. For the revised malpractice GPCI, data were collected 
from insurers that, on average, represented 82 percent of the market in 
each State, with the lowest State market share being 60 percent. We 
believed that the more recent and much more comprehensive data greatly 
improved the accuracy of the malpractice GPCIs for 1995 through 1997.
    Detailed discussions of the methodology and data sources of the 
1995 through 1997 GPCIs can be obtained by requesting the following 
studies from NTIS by calling 1-800-553-NTIS, or (703) 487-4650 in 
Springfield, Virginia:
    [sbull] ``Updating the Geographic Practice Cost Index: Revised Cost 
Shares.'' Debra A. Dayhoff, John E. Schneider, and Gregory C. Pope. 
NTIS PB94-161072.
    [sbull] ``Updating the Geographic Practice Cost Index: The 
Physician Work GPCI.'' Gregory C. Pope and Deborah A. Dayhoff. NTIS 
PB94-161080.
    [sbull] ``Updating the Geographic Practice Cost Index: The Practice 
Expense GPCI.'' Gregory C. Pope, Deborah A. Dayhoff, Angella R. 
Merrill, and Killard W. Adamache. NTIS PB94-161098.
    ``Updating the Geographic Practice Cost Index: The Malpractice 
GPCI.'' Stephen Zuckerman and Stephen Norton. NTIS PB94-161106.
6. Revised 1998 Through 2000 Geographic Practice Cost Indices
    The same data sources and methodology used for the 1995 through 
1997 GPCIs were also used for the revised 1998 through 2000 GPCIs with 
a few very minor modifications. No acceptable additional data sources 
were found. The cost shares were the same as in the 1995 through 1997 
GPCIs because no changes were made in the MEI weights. Indices for fee 
schedule areas were based on the indices for the individual counties 
within the fee schedule area. Fee schedule RVUs were again used to 
weight the county indices (to reflect volumes of services within 
counties) when mapping to MPFS payment areas and in constructing the 
national average indices. However, we used more recent data, 1994 
rather than 1992 RVUs, in the county, locality, and national mapping 
for the proposed GPCIs. The payment effect of using more current RVU 
weights was negligible in most cases and generally resulted in changes 
at the third decimal point if at all.
a. Work Geographic Practice Cost Indices
    The work GPCIs were based on the decennial census. The 1992 through 
1994 work GPCIs were based on 1980 census data, because 1990 census 
data were not yet available. The work GPCIs were revised in 1995 with 
new data from the 1990 census. New census data will not be available 
again until sometime after the 2000 census is compiled. We searched for 
other data that would enable us to update the work GPCIs between the 
decennial censuses. No acceptable data sources were found. The most 
promising sources of data were the hospital wage data collected by us 
to calculate the IPPS hospital wage index and the payroll per worker 
data collected by the U.S. Bureau of Labor Statistics from State 
unemployment insurance agencies (the ES-202 data).
    The IPPS hospital wage data were examined when we constructed the 
original GPCIs. They were rejected as a physician fee schedule data 
source in favor of census data because of their lack of an occupation 
mix adjustment and their unrepresentative occupational composition 
(hospital employees rather than professionals or physician office 
employees). ES-202 data consist of total payroll divided by counts of 
wage and salary workers. The major disadvantage we identified was that 
they do not measure hourly earnings, only payroll per employee, and no 
occupational detail is available. Also, they did not adjust for part-
time or full-time and hours worked, and the numbers of workers was too 
small for certain States, all of which led to unstable estimates of 
payroll per worker. We compared the changes by State from 1989 to 1993 
in the IPPS wage data and the ES-202 data to see if there was any 
correlation between the two series. The correlation between the two was 
only moderate, 0.55. The changes indicated by both series were 
generally small, for example, a few percentage points. The difference 
between the two series by State was in many cases as large as or 
greater than the change indicated by either series. The average 
difference between the two series (2.1 percent) is as large as the 
change indicated by either series. In addition, changes for particular 
States were substantially different between the two series. For 
example, Indiana relative wages rose by 1.9 percent according to the 
IPPS data, but fell 5.7 percent according to the ES-202 data.
    Since we were unable to find an acceptable data source for updating 
the work GPCIs, we examined the consequences of not updating the work 
GPCIs between the decennial censuses. We compared the changes between 
the 1992 through 1994 work GPCIs, based on the 1980 census, and the 
1995 through 1997 GPCIs, based on the 1990 census. On average, the full 
variation in State work GPCIs changed by about 5 percent. This 
translates to about a 1.2 percent change in the one-quarter work GPCI 
calculation prescribed by law. Since work makes up about one-half of 
the GPCI cost shares, this translated into an average payment change 
per State of about 0.6 percent from updating the work GPCI based on the 
10-year change in relative wages indicated by the census data. Even the 
maximum change in the full variation in State work GPCIs from the 1992 
through 1994 to the 1995 through 1997 GPCIs of 14 percent translates 
into only about a 1.8 percent change in payments. The largest full work 
GPCI changes for individual payment areas were from 16 to 20 percent, 
or about a 4 to 5 percent change in the one-quarter work GPCI, or about 
a 2.4 percent change in payments. However, 80 percent of payment areas 
experienced payment changes of less than 1 percent, and 50 percent of 
payment localities experienced payment changes of less than 0.5 percent 
as a result of changes in the census data from 1980 to 1990.
    We, therefore, made no changes in the 1998 through 2000 work GPCIs 
from the 1995 through 1997 work GPCIs, other than the generally 
negligible changes resulting from using 1994, rather than 1992, RVUs 
for this GPCI update because we were unable to find acceptable data for 
use between the decennial censuses. We believed it is preferable that 
we make no changes rather than make inaccurate changes based on 
inappropriate data. We felt that this was a reasonable position given 
the generally small magnitude of the changes in payments resulting from 
the changes in the work GPCIs from the 1980 to the 1990 census data.
b. Practice Expense Geographic Practice Cost Indices
    (1) Employee Wage Indices.

[[Page 49043]]

    As with the work GPCIs, the employee wage portion of the practice 
expense GPCIs were also based on decennial census data. For the same 
reasons discussed above pertaining to the work GPCIs, we made no 
changes in the employee wage indices during the 1998 through 2000 GPCI 
update. The average change from the 1992 through 1994 to 1995 through 
1997 employee wage indices across States was about 6 percent. Since the 
employee wage index has a weight of about 16 percent in the GPCI cost 
shares, this translates into a 1 percent average change in payments. 
The maximum payment change in any payment area resulting from changes 
from the 1992 through 1994 to 1995 through 1997 employee wage indices 
was about 3.2 percent. Payment changes in over two-thirds of the 
payment areas were less than 1 percent.
    (2) Rent Indices.
    The office rental indices were again based on HUD residential rent 
data. The rental indices were based on 1996 HUD data as opposed to 1994 
HUD data in the 1995 through 1997 GPCIs. HUD made two small 
methodological changes in developing the data. First, HUD used the 40th 
percentile of area rents rather than the 45th percentile. This did not 
materially affect the GPCIs, which measure relative rents among areas. 
Second, HUD established a rental floor for rural counties at the 
statewide rural average. This had the effect of raising the office 
rental indices slightly in rural areas.
    We made one methodological change in the rent indices. HUD 
publishes FMRs only for metropolitan areas as a whole. For the 1995 
through 1997 GPCIs, HUD used a special tabulation of the 1990 census 
data to allocate rents by county within CMSAs. In some metropolitan 
areas, this had the effect of reducing the central city index below the 
suburban index, probably because of lower unmeasured housing quality in 
central cities than in suburbs. We did not feel that this was a 
representative indicator of relative physician rents, since the GPCIs 
are intended to measure rental costs for offices of similar quality in 
different areas. The metropolitan-wide rent was most appropriate for 
measuring the cost of space of an average quality across the 
metropolitan area, which is why HUD publishes only metropolitan-wide 
FMRs. Also, the census county adjustments can be updated only once 
every 10 years. For this reason, we believed that the county-specific 
adjustment should not be made for all large metropolitan areas but 
should be retained only for the New York City Primary Metropolitan 
Statistical Area. Available evidence suggests that rents vary 
substantially among the boroughs of New York City and that, given the 
current locality configuration, the county-specific rental adjustment 
appropriately reflects these patterns in the New York City area, 
especially the higher rents in Manhattan.
    (3) Medical Equipment, Supplies, and Miscellaneous Expenses. As 
with the 1992 through 1994 and 1995 through 1997 GPCIs, this component 
was given a national value of 1.000, indicating no measurable 
difference among areas in costs.
c. Malpractice Geographic Practice Cost Indices.
    Again, malpractice premium data were collected for a mature 
``claims made'' policy with $1 million to $3 million limits of 
coverage, with adjustments made for mandatory patient compensation 
funds. As with the 1995 through 1997 GPCIs, data were collected for the 
20 largest Medicare-billing physician specialties. The premium data 
represent at least 50 percent of the market in each State. Again, we 
used an average of the 3 most recent premium years to smooth out the 
considerable year-to-year fluctuations that can occur in malpractice 
premiums. The revised 1998 through 2000 malpractice indices were based 
on 1992 through 1994 premium data, the latest years available when this 
revision was being conducted in 1995 through 1996, compared to the 1990 
through 1992 data used in the current 1995 through 1997 indices. 
Another change from the 1995 through 1997 indices is that the specialty 
shares of the 20 specialties were weighted by fee schedule RVUs rather 
than allowed charges.
    Detailed discussions of the methodology and data sources of the 
1998 through 2000 GPCIs may be obtained by requesting the following 
study from NTIS by calling 1-800-533-NTIS, or, for residents of 
Springfield, Virginia, (703) 487-4650: ``Second Update of the 
Geographic Practice Cost Index.'' Gregory C. Pope and Killard W. 
Adamache.
7. Revised 2001-2003 Geographic Practice Cost Indices
    The same data sources and methodology used for the 1998 through 
2000 GPCIs were used for the 2001 through 2003 GPCIs. No acceptable 
additional data sources were found. The only changes from the 1998 
through 2000 GPCI were in the cost shares and RVU weighting. As shown 
in the cost share table in the discussion of the development of the 
GPCIs, the cost shares were changed to reflect the revisions in the 
MEI. This does not affect the work or malpractice GPCIs since they are 
stand-alone indices (not composed of multiple indices). This cost share 
revision has a slight effect on the practice expense GPCIs because it 
changes slightly the weights among the employee wage, rents and 
miscellaneous components of the practice expense index. We used more 
recent RVU data, 1998 rather than 1994, in the county, locality, and 
national mapping in the proposed GPCIs. The payment effect of this was 
generally negligible.
a. Work Geographic Practice Cost Indices.
    For the same reasons discussed in the section on the 1998 through 
2000 work GPCIs, no changes were proposed in the work GPCIs, other than 
the generally negligible changes resulting from the use of 1998 rather 
than 1994 RVUs for weighting, because we were unable to find acceptable 
data for use between the decennial census.
b. Practice Expense Geographic Practice Cost Indices
    (1) Employee Wage Indices.
    As with the work GPCIs, the employee wage indices were based on 
decennial census data. For the same reasons discussed above pertaining 
to the work GPCIs, we proposed no changes in the employee wage indices 
during this GPCI update.
    (2) Rent Indices.
    The office rental indices were again based on HUD residential rent 
data. No changes were made in the methodology. The proposed rental 
indices were based on 2000 rather than 1994 HUD data.
    (3) Medical Equipment, Supplies, and Miscellaneous Expenses. As 
with all previous GPCIs, this component is given a national value of 
1.000, indicating no measurable differences among areas in costs.
c. Malpractice Geographic Practice Cost Indices
    The same methodology described in the 1998 through 2000 malpractice 
GPCI section was used in the revision of malpractice GPCIs section for 
2001 through 2003, the only difference being the use of more recent 
data. The malpractice indices were based on 1996 through 1998 
malpractice premium data rather than the 1992 through 1994 malpractice 
premium data that was used in the previous GPCI update.
8. Proposed 2004 through 2007 Geographic Practice Cost Indices
    The main criticism of the 2001 through 2003 GPCIs was that they 
were

[[Page 49044]]

outdated because they were based on old data; for example, 1990 
decennial census data and 1996 through 1998 malpractice premiums, the 
most recent data available when the GPCIs for 2001 through 2003 were 
established. The calculation of the proposed 2004 through 2007 GPCIs 
will be based upon the same data sources and methodology, but the 2004 
through 2007 GPCIs will utilize more current data: 2000 decennial 
census data, 2000 HUD fair market rental (FMR) data for residential 
rents, and 1999 through 2003 malpractice premium data. This should 
address the criticism of the 2001 through 2003 GPCIs being out of date.
a. Proposed Work Geographic Practice Cost Indices
    We have not yet received the 2000 decennial census data that will 
be utilized for the revision of the work GPCIs. For this reason, 
revisions to the work GPCIs will be included in the proposed rule for 
calendar year 2005.
b. Proposed Practice Expense Geographic Practice Cost Indices
    We have not yet received the 2000 decennial census data that will 
be utilized for the revision of the majority of the practice expense 
GPCI. We have obtained 2000 HUD fair market rental (FMR) data for 
residential rents that is utilized for a portion of the practice 
expense revision. Since we have not received the primary data upon 
which practice expense GPCIs are calculated and since the office rent 
component of the practice expense GPCI has not proven to be a 
substantially variable component in past GPCI updates and accounts for 
only approximately 12.0 percent of the total GPCI calculation (phased 
in over a two year period), we have decided not to revise the practice 
expense GPCIs now based on our limited data. For these reasons, 
revisions to the practice expense GPCIs will be included in the 
proposed rule for calendar year 2005.
c. Proposed Malpractice Geographic Practice Cost Indices
    The malpractice GPCI is the most volatile of the three indexes with 
relatively large variations existing between localities. Malpractice 
premium data for a $1 million to $3 million mature ``claims made'' 
policy were collected, with mandatory patient compensation funds 
considered. However, due to the recent concerns regarding the 
escalating cost of professional liability insurance, especially in 2002 
and 2003, we will be collecting more recent malpractice premium data. 
We propose using actual 1999 through 2002 malpractice premium data and 
projecting the malpractice premium rates for 2003. The methodology for 
forecasting 2003 medical malpractice premiums will consist of 
calculating the geometric mean rate of growth between 1999 through 2002 
and applying that rate to the 2002 premium. We will also obtain a 
national aggregate malpractice premium series with which to benchmark 
the 2003 forecast. At this point, we are still collecting the 2002 
malpractice premium data and are thus unable to project 2003 
malpractice premium data in this proposed rule. We are proposing to 
base the malpractice GPCIs upon actual 2001 and 2002 malpractice 
premium data and projected 2003 malpractice premium data by January 1, 
2004. These revised malpractice GPCIs will be published in this year's 
final physician fee schedule regulation. They will be considered 
interim and subject to public comment.
9. Payment Localities
    We are also interested in receiving comments on the composition of 
the current Medicare physician payment localities (89 separate payment 
localities) to which the GPCIs are applied. For additional information 
regarding the composition of the 89 Medicare physician payment 
localities please refer to both the July 2, 1996 proposed rule (61 FR 
34615) and the November 22, 1996 final rule (61 FR 59494) for the 
Medicare physician fee schedule.

C. Coding Issues

1. Payment Policy for CPT Tracking Codes
    In the November 1, 2001 final rule (66 FR 55269), we stated that 
carriers have discretion for coverage and payment of services described 
by CPT tracking codes, also known as CPT Category III codes, unless we 
have made a national coverage determination (NCD). (These CPT Category 
III codes are distinct from the HCPCS Level III codes used by local 
claims processors which are to be discontinued under HIPAA 
implementation.) We have received several requests to create national 
payment amounts for some CPT tracking codes even if there has been no 
NCD with respect to the services. After review of these requests, we 
are proposing to change our policy regarding payment for CPT tracking 
codes.
    We propose to create national payment policy and determine national 
payment amounts for CPT tracking codes when there is a significant 
programmatic need for us to do so. Such a need could arise, for 
example, if we receive requests from carrier medical directors that we 
establish a national payment amount because of carrier inability to do 
so. This policy change would not change the contractor's discretion 
over coverage for the CPT tracking codes, but would establish a payment 
level if the contractor finds that coverage is warranted. Carriers do 
not need to establish a payment amount for a tracking code until they 
receive a claim for the code.
2. Excision of Benign and Malignant Lesions
    In the CPT 2003 book, the definitions for excision of benign 
lesions (CPT codes 11400 through 11446 inclusive) and excision of 
malignant lesions (CPT codes 11600 through 11646 inclusive) were 
substantively changed. Starting in 2003, these codes are to be reported 
based on the excised diameter (actual skin removed) rather than on the 
size of the lesion. We have reviewed the new code descriptors and are 
proposing to make the work RVUs the same for removal of all skin 
lesions with the same excised diameters that are from the same area of 
the body, whether the lesions are benign or malignant For example, the 
work RVUs for the removal of benign skin lesions from the trunk, arms 
or legs with excised diameter 1.1-2.0 cm, CPT code 11402, would be the 
same as the work RVUs for CPT code 11602, which is the removal of 
malignant skin lesions from trunk, arms or legs with excised diameter 
of 1.1-2.0 cm. Therefore, to retain budget neutrality within each code 
pair, the total work RVUs associated with each code pair will be 
constant both before and after the work adjustment. We will accomplish 
this by dividing the total 2003 work RVUs (2003 work RVUs for a given 
code pair multiplied by 2002 utilization) by the total 2002 utilization 
for the given code pair. For example:

----------------------------------------------------------------------------------------------------------------
                                                                       2002          2003 work        Total work
                             CPT code                              utilization          RVU              RVUs
----------------------------------------------------------------------------------------------------------------
11400............................................................       69,041   x         0.85   =       58,685

[[Page 49045]]


11600............................................................       13,768   x         1.31   =       18,036
                                                                  -------------    -------------    ------------
  Total..........................................................       82,809  ..  ...........  ..      76,721
----------------------------------------------------------------------------------------------------------------
76,721 divided by 82,809 = 0.93 work RVU

    The proposed work RVUs for these codes follow:

[[Page 49046]]

[GRAPHIC] [TIFF OMITTED] TP15AU03.007


[[Page 49047]]


3. Create G Codes for Monitoring Heart Rhythms
    Technological advances have made cardiac telemetry equipment, 
typically used in hospitals, available in the home setting. It is now 
possible to discharge patients with arrhythmias to a home setting and 
have them monitored at home in a manner similar to hospital monitoring. 
This monitoring can be used to diagnose arrhythmias or to monitor 
patients with known arrhythmias to determine, on a real-time basis, 
whether the patient is having ongoing arrhythmias. The equipment 
consists of patient leads and a home telemetry station that is 
connected to a distant monitoring station via the telephone. The 
monitoring station is attended twenty-four hours a day, seven days a 
week by a technician. Upon receipt of rhythm strips, the technician 
records and formats the strips and faxes them to the treating 
physician.
    This equipment automatically records the patient's heart rhythm and 
is not triggered by the patient (for example, his response to 
symptoms). The equipment is pre-set with parameters (for example, heart 
rate of over 120) that trigger it to transmit the patient's cardiac 
rhythm to monitoring station. Additionally, the technician at the 
monitoring station can interrogate the home station and have it 
transmit rhythm strips upon request even when no arrhythmia has 
triggered an automatic transmission. These latter transmissions are at 
the discretion of the technician and may or may not be faxed to the 
treating physician based on previous orders.
    Depending on the clinical need, patients may be monitored by this 
equipment for varying lengths of time. Furthermore, the frequency of 
transmission of cardiac rhythms varies, as does the amount of material 
that must be reviewed by the physician. For example, a patient may have 
no cardiac rhythms transmitted for one or more days while on other days 
the patient may have several minutes of arrhythmias transmitted for 
physician review.
    To ensure this technology is available to Medicare beneficiaries 
for covered indications (coverage is currently at the discretion of the 
local Medicare contractors because there is no national coverage 
determination for this service) we are creating several HCPCS G codes 
to describe this service and are establishing national payment amounts 
for these services. Currently Medicare contractors are requiring both 
the PC and TC of this service to be billed under CPT code 93799, 
Unlisted cardiovascular procedure or service. This service is covered 
under the diagnostic test benefit category at section 1861(s)(3) of the 
Act.
    Medicare is establishing the following HCPCS codes to describe this 
service:

GXXX1--Electrocardiographic monitoring for diagnosis of arrhythmias, 
utilizing a home computerized telemetry station and trans-telephonic 
transmission, with automatic activation and real time notification of 
monitoring station, 24-hour attended monitoring, per 30-day period of 
time; includes recording, monitoring, receipt of transmissions, 
analysis, and physician review and interpretation. (global)
GXXX2--Electrocardiographic monitoring for diagnosis of arrhythmias, 
utilizing a home computerized telemetry station and trans-telephonic 
transmission, with automatic activation and real time notification of 
monitoring station, 24-hour attended monitoring, per 30-day period of 
time; recording (includes hook-up, recording and disconnection)
GXXX3--Electrocardiographic monitoring for diagnosis of arrhythmias, 
utilizing a home computerized telemetry station and trans-telephonic 
transmission, with automatic activation and real time notification of 
monitoring station, 24-hour attended monitoring, per 30-day period of 
time; monitoring, receipt of transmissions, and analysis
GXXX4--Electrocardiographic monitoring for diagnosis of arrhythmias, 
utilizing a home computerized telemetry station and trans-telephonic 
transmission, with automatic activation and real time notification of 
monitoring station, 24-hour attended monitoring, per 30-day period of 
time; physician review and interpretation.

    We are establishing the following payment amounts for these codes:

GXXX1--We are assigning 0.52 physician work RVUs and 0.24 malpractice 
RVUs which is equivalent to CPT Code, 93268 Patient demand single or 
multiple event recording with presymptom memory loop, 24-hour attended 
monitoring, per 30 day period of time; includes transmission physician 
review and interpretation. We are also crosswalking the practice 
expense inputs from CPT Code 93268.
GXXX2--We are assigning 0.07 malpractice RVUs which is equivalent to 
CPT Code 93270, Patient demand single or multiple event recording with 
presymptom memory loop, 24-hour attended monitoring, per 30 day period 
of time; recording (includes hook-up, recording, and disconnection) and 
crosswalking the practice expense inputs from CPT Code 93270.
GXXX3--We are assigning 0.15 malpractice RVUs which is equivalent to 
CPT Code 93271, Patient demand single or multiple event recording with 
presymptom memory loop, 24-hour attended monitoring, per 30 day period 
of time; monitoring, receipt of transmission, and analysis and also are 
crosswalking the practice expense inputs from CPT Code 93271.
GXXX4--We are assigning 0.52 physician work RVUs and 0.02 malpractice 
RVUs which is equivalent to CPT Code 93272 Patient demand single or 
multiple event recording with presymptom memory loop, 24-hour attended 
monitoring, per 30 day period of time; physician review and 
interpretation only. We are also crosswalking the practice expense 
inputs, from CPT Code 93272.

    We believe these proposed RVUs and crosswalks are appropriate as 
the services provided in the new codes are very similar in terms of 
physician work, resource use, and malpractice risk to the existing CPT 
Codes.
4. CPT Code 88180 (Flow Cytometry; Each Cell Surface, Cytoplasmic or 
Nuclear Marker)
    Flow cytometry is a technique to analyze single cell suspensions 
from blood, bone marrow, body fluids, lymph nodes, and other tissues. 
The technique, currently coded as CPT code 88180, Flow cytometry, each 
cell surface, cytoplasmic or nuclear marker, quantifies cell surface, 
cytoplasmic, and nuclear antigens. The results are frequently used to 
diagnose lymphomas and leukemias. They are also used to monitor 
lymphocyte subpopulations in patients with HIV infection or solid organ 
transplantation. For example, in patients with HIV infection, 
physicians evaluate CD4+ lymphocytes as a measure of the severity of 
the infection (some physicians also measure other markers although 
their clinical relevance is not as well established). In patients with 
solid organ transplantation, physicians measure various lymphocyte 
subpopulations to help assess early rejection, identify bone marrow 
toxicity during immunosuppressive therapy, and differentiate infections 
from transplant rejection. In these cases the treating physician, not 
the pathologist, makes the diagnosis. It is inappropriate for the 
pathologist to report the professional component (PC) of this service. 
In general, flow cytometry results must be utilized along with clinical 
data to make

[[Page 49048]]

a diagnosis. Other clinical situations where flow cytometry tests have 
some value include stem cell transplantation, paroxysmal nocturnal 
hemoglobinuria, immune deficiency disorders, etc.
    When flow cytometry is performed to diagnose lymphoma or leukemia, 
there is a single interpretation based on the quantification of all 
markers tested. There is not an interpretation of each marker 
individually.
    Moreover, for a given clinical indication (for example, diagnosis 
of lymphoma based on lymph node examination) there is variation in the 
number of markers performed. The number of markers that are necessary 
depends, in part, on the pathologic information available to the 
pathologist at the time he/she orders flow cytometry. Therefore, for a 
given clinical indication (for example, diagnosis of lymphoma from a 
lymph node) a pathologist who chooses to perform flow cytometry before 
performing a microscopic examination of the tissue specimen (for 
example, a lymph node) may order more markers than a pathologist who 
orders flow cytometry after performing a microscopic examination of the 
tissue specimen.
    The current coding scheme (payment on a per marker basis) may 
encourage the performance of more markers than may be medically 
necessary because the pathologist determines what markers to perform 
and when to perform them.
    Our review of flow cytometry reports confirms that markers are 
interpreted (and reported) on a panel basis. From our review, 
physicians do not typically interpret individual markers. This is 
consistent with most of the clinical indications for flow cytometry 
that require performance of several markers to make a diagnosis. There 
may also be clinical situations where no professional component is 
performed although it is appropriate to perform the technical component 
(TC) (for example, monitoring of HIV infected patients, monitoring of 
solid organ transplantations).
    The fact that markers are generally analyzed on a ``panel'' basis, 
not an ``individual'' basis, means that the current practice and use of 
flow cytometry is not appropriately reflected by the PC of CPT code 
88180.
    However, we do believe that it is appropriate to pay for the TC of 
each marker separately, although at a lower rate of payment (due to 
economies of scale) when multiple markers are performed. A coding 
scheme that pays per marker for the TC and per panel for the PC would 
more accurately reflect the actual practice of flow cytometry.
    The laboratory community is aware of our concerns about the coding 
of flow cytometery and will review this issue and consider whether 
changes should be made to the current coding for the procedure. If no 
changes in coding are forthcoming, we would consider creating HCPCS 
codes for flow cytometry. We welcome comments and recommendations on 
appropriate values for the procedure that we could use in developing 
any future proposal.
5. Create G Codes for Dialysis Patient Seeing the Doctor
    We have reviewed our current payment policy for the monthly 
dialysis capitation, CPT codes 90918 through 90921 in response to 
concerns that have been raised over whether our payment policy is 
consistent with current medical practice.
    Specifically, we understand that physician involvement in dialysis 
for end stage renal disease (ESRD) varies based on a patient's 
condition, response to dialysis, and comorbidities. A physician 
involvement for a single patient may also vary from month to month. It 
is our intent to ensure that beneficiaries with ESRD receive the 
highest quality dialysis care available and that physician involvement 
in dialysis for ESRD patients is appropriate and consistent with the 
needs of the patient in any month.
    Observers of the quality of care for dialysis patients have noted 
that some dialysis patients may benefit from being evaluated by their 
physician frequently. A recent international comparison study suggested 
that longer physician-patient contact time in hemodialysis facilities 
was associated with lower mortality risk.
    To align the payment incentives with the frequency of the physician 
personally evaluating the dialysis patient, we are proposing to make 
CPT codes 90918, 90919, 90920, 90921 invalid for Medicare and to create 
G codes. We are proposing to create 3 new G codes in place of each CPT 
code with higher payments associated with providing more visits within 
each month to an ESRD patient. Under our proposal, there will be 
separate codes when the physician provides 1 visit per month, 2-3 
visits per month and 4 or more visits per month. The code for 1 visit 
per month will have the lowest payment while a higher payment will be 
provided for 2 to 3 visits per month and the highest payment for 4 or 
more visits per month. Our methodology for determining payment is 
described below. These new codes will be reported once per month for 
services performed in an outpatient setting and related to the 
patient's ESRD. These physician services will continue to include the 
establishment of a dialyzing cycle, outpatient evaluation and 
management of the dialysis visits, telephone calls, and patient 
management, provided during a full month. These codes would not be used 
if a hospitalization occurred during the month.

GXXX5--End Stage Renal Disease (ESRD) related services per full month, 
for patients under 2 years of age to include monitoring for the 
adequacy of nutrition, assessment of growth and development, and 
counseling of parents; with 4 or more face-to-face physician visits per 
month.
GXXX6--End Stage Renal Disease (ESRD) related services per full month, 
for patients under 2 years of age to include monitoring for the 
adequacy of nutrition, assessment of growth and development, and 
counseling of parents; with 2 or 3 face-to-face physician visits per 
month.
GXXX7--End Stage Renal Disease (ESRD) related services per full month, 
for patients under 2 years of age to include monitoring for the 
adequacy of nutrition, assessment of growth and development, and 
counseling of parents; with 1 face-to-face physician visit per month.
GXXX8--End Stage Renal Disease (ESRD) related services per full month, 
for patients between 2 and 11 years of age to include monitoring for 
the adequacy of nutrition, assessment of growth and development, and 
counseling of parents; with 4 or more face-to-face physician visits per 
month.
GXXX9--End Stage Renal Disease (ESRD) related services per full month, 
for patients between 2 and 11 years of age to include monitoring for 
the adequacy of nutrition, assessment of growth and development, and 
counseling of parents; with 2 or 3 face-to-face physician visits per 
month.
GXX10--End Stage Renal Disease (ESRD) related services per full month, 
for patients between 2 and 11 years of age to include monitoring for 
the adequacy of nutrition, assessment of growth and development, and 
counseling of parents; with 1 face-to-face physician visit per month.
GXX11--End Stage Renal Disease (ESRD) related services per full month, 
for patients between 12 and 19 years of age to include monitoring for 
the adequacy of nutrition, assessment of growth and development, and

[[Page 49049]]

counseling of parents; with 4 or more face-to-face physician visits per 
month.
GXX12--End Stage Renal Disease (ESRD) related services per full month, 
for patients between 12 and 19 years of age to include monitoring for 
the adequacy of nutrition, assessment of growth and development, and 
counseling of parents; with 2 or 3 face-to-face physician visits per 
month.
GXX13--End Stage Renal Disease (ESRD) related services per full month, 
for patients between 12 and 19 years of age to include monitoring for 
the adequacy of nutrition, assessment of growth and development, and 
counseling of parents; with 1 face-to-face physician visit per month.
GXX14--End Stage Renal Disease (ESRD) related services per full month, 
for patients 20 years of age and over; with 4 or more face-to-face 
physician visits per month.
GXX15--End Stage Renal Disease (ESRD) related services per full month, 
for patients 20 years of age and over; with 2 or 3 face-to-face 
physician visits per month.
GXX16--End Stage Renal Disease (ESRD) related services per full month, 
for patients 20 years of age and over; with 1 face-to-face physician 
visit per month.

    We are assuming that most physicians will provide 4 or more visits 
to their ESRD patients and a small proportion will provide 2-3 visits 
or only 1 visit per month. Using these assumptions and Medicare 
utilization data from 2002, we developed relative value units for the 
new G codes that will make the Medicare's aggregate payments for ESRD 
related services under the physician fee schedule approximately equal 
to current payments that are occurring using procedure codes 90918 to 
90921. Relative to our current payments, we are proposing to lower 
payment when the physician provides 1 visit per month or 2-3 visits per 
month. Since we are proposing to lower payment if the physician 
provides fewer than 4 visits per month, in order to maintain the same 
aggregate payments for ESRD related services, we are proposing to 
increase payment if the physician provides 4 or more visits per month. 
Using these assumptions, the proposed work, practice expense and 
malpractice RVUs for procedure codes GXXX5 through GXXX16 are shown 
below:

                                 Table 4
------------------------------------------------------------------------
                                        Physician  Practice
                 Code                      work     expense  Malpractice
------------------------------------------------------------------------
GXXX5.................................      12.92      8.70        0.60
GXXX6.................................       5.19      3.49        0.24
GXXX7.................................       3.39      2.29        0.16
GXXX8.................................       9.91      4.86        0.43
GXXX9.................................       3.55      1.74        0.15
GXX10.................................       2.32      1.14        0.10
GXX11.................................       8.47      4.54        0.35
GXX12.................................       3.14      1.68        0.13
GXX13.................................       2.05      1.10        0.08
GXX14.................................       5.16      2.94        0.22
GXX15.................................       1.94      1.10        0.08
GXX16.................................       1.27      0.73        0.06
------------------------------------------------------------------------

    We believe that stratifying payment amounts by physician face-to-
face involvement would be an improvement over the current method, but 
still may not be optimal to foster improved outcomes.
    Both the Institute of Medicine and Medicare Payment Advisory 
Commission (MedPAC) have advocated an increased role for CMS in 
encouraging improved quality outcomes. In their June 2003 Report to 
Congress (Variation and Innovation in Medicare), MedPAC recommended 
``the Secretary should conduct demonstrations to evaluate provider 
payment differentials and structures that reward and improve quality.''
    We responded to this call by increasing the focus of our Quality 
Improvement Organizations (formerly called Peer Review Organizations) 
and ESRD Networks on developing quality measures and also performing or 
assisting providers with the performance of quality improvement 
activities. We have also implemented initiatives to address the quality 
of care provided in various settings. These include: The Home Health 
Quality Initiative; the Hospital Quality Initiative; the Nursing Home 
Quality Initiative; the Home Health Quality Initiative and Doctors 
Office Quality Project (see http://cms.hhs.gov/quality/ for more 
information).
    Additionally, we have developed various demonstration projects that 
provide incentives to improve quality. For example, as part of an 
ongoing effort to achieve improved patient outcomes, we announced the 
ESRD Disease Management Demonstration in the Federal Register on June 
4, 2003. The goal of this demonstration is to achieve improved patient 
outcomes through disease management services and quality incentives. 
This demonstration does not directly involve renal physicians, but we 
are considering the use of quality incentives in potential future 
payment systems for them as well. Renal physicians play a central role 
in leading the interdisciplinary team charged with managing an ESRD 
patient's care.
    Thus, we are seeking comment on how to further revise our payment 
methodology to improve quality of care and outcomes. We are also 
interested in information that could help us design future 
demonstrations that would incorporate both dimensions of care (quality 
and utilization) and help ensure that payment is based on appropriate 
patient-specific care that has been shown to lead to improved outcomes 
for this complex patient population.
6. Extracorporeal Shock Wave Lithotripsy for Musculoskeletal Conditions
    We received several comments on the G codes for extracorporeal 
shock wave lithotripsy created in the December 31, 2002 final rule. We 
will be responding to those comments as part of this year's final rule, 
but we would appreciate any additional information on the physician 
work, practice expenses, and duration of treatment and intensity or 
energy of the shock waves applied for various conditions at various 
anatomic sites.
7. Late RUC recommendations for 2003 CPT codes.
    RUC recommendations for RVUs for approximately 20 new CPT codes for 
2003 were received too late for incorporation in the December 31, 2002 
final rule. We proposed interim RVUs for these codes and, as with all 
interim values, these were subject to comment. In their comments on the 
December 2002 final rule, the AMA-RUC requested that we consider their 
late recommendations for these codes. We will be addressing these, as 
well as other comments received on the interim RVUs in the upcoming 
final rule.

III. Other Issues

A. Rebasing and Revising of the Medicare Economic Index

1. Background
    The Medicare Economic Index (MEI) is required by section 1842(b)(3) 
of the Act, which states that prevailing charge levels beginning after 
June 30, 1973 may not exceed the level from the previous year except to 
the extent that the Secretary finds, on the basis of appropriate 
economic index data, that the higher level is justified by year-to-year 
economic changes. Beginning July 1, 1975, and continuing through today, 
the MEI has met this requirement by reflecting the weighted sum of the 
annual price changes of the inputs used

[[Page 49050]]

to produce physicians' services. As such, the MEI attempts to be an 
equitable measure of price changes associated with physician time and 
operating expenses.
    The current form of the MEI was detailed in the November 25, 1992 
Federal Register (57 FR 55896) and was based in part on the 
recommendations of a Congressionally-mandated meeting of experts held 
in March 1987. Since that time, the structure of the MEI has remained 
essentially unchanged, with two exceptions. First, the MEI was rebased 
in 1998 (63 FR 58845), which moved the cost structure of the index from 
1992 data to 1996 data. Second, the methodology for the productivity 
adjustment was revised in 2002 (67 FR 80019) to reflect the percentage 
change in the 10-year moving average of economy-wide multifactor 
productivity.
    We are proposing to rebase and revise the MEI for the 2004 
physician fee schedule update. The terms ``rebasing'' and ``revising'', 
while often used interchangeably, actually denote different activities. 
Rebasing means moving the base year for the structure of costs of an 
input price index, while revising means changing data sources, cost 
categories, or price proxies used in the input price index. As is 
always the case with a rebasing and revising exercise, we have 
attempted to use the most recently available, relevant, and appropriate 
information to develop the MEI cost category weights and price proxies. 
We detail below the updated cost weights for the MEI expense 
categories, our rationale for selecting the price proxies in the MEI, 
and the results of the proposed rebasing and revising of the MEI.
2. Use of More Current Data
    The MEI was last rebased and revised in 1998 for the 1999 physician 
fee schedule update (63 FR 58845). The current base year for the MEI is 
1996, which means that the cost weights in the index reflect 
physicians' expenses in 1996. However, we believe it is desirable to 
periodically rebase and revise the index so that the expense shares and 
proxies reflect more current conditions. For this reason, we propose to 
rebase the MEI to reflect physicians' expenses in 2000. In addition, we 
are proposing to revise the cost categories in the MEI and to change 
three of the proxies we currently use to ensure that the index is 
appropriately reflecting price changes. We will continue to adjust the 
MEI for economy-wide multifactor productivity.
    The expense categories in the proposed MEI were primarily derived 
from the 2003 AMA Physician Socioeconomic Characteristics publication 
(2003 Patient Care Physician Survey data), which measures physicians' 
earnings and overall practice expenses for 2000. The AMA data were used 
to determine expenditure weights for total expenses, physicians' 
earnings, and malpractice expenses, the only information detailed in 
this survey. To further disaggregate into subcategories reflecting more 
detailed expenses, we used data from previous AMA surveys, the 1997 
Bureau of Economic Analysis Benchmark Input-Output table (I/O), the 
2003 Bureau of Labor Statistics (BLS) Employment Cost Index (ECI), and 
the 2002 Bureau of the Census Current Population Survey (CPS).
3. Rebasing and Revising Expense Categories in the MEI
a. Developing the Weights For Use in the MEI
    Developing a rebased and revised MEI requires selecting a base year 
and determining the number and composition of expense categories. We 
are proposing to rebase the MEI to CY 2000. CY 2000 was chosen as the 
base year for two main reasons: (1) CY 2000 was the most recent year 
for which data were available from the AMA, and (2) we believed that 
the CY 2000 data were representative of the changing distribution of 
physicians' earnings and practice expenses over time.
    We determined the number and composition of expense categories 
based on the criteria used to develop the current MEI and other CMS 
input price index expenditure weights. These criteria are timeliness, 
reliability, relevance, and public availability. For more information 
on these criteria, see the May 9, 2002 Federal Register (67 FR 31444) 
and the detail later in this preamble. Table 5 lists the set of 
mutually exclusive and exhaustive cost categories that make up the 
proposed rebased and revised MEI.

      Table 5.--Proposed Revised Medicare Economic Index Expenditure Categories, Weights, and Price Proxies
----------------------------------------------------------------------------------------------------------------
                                                   Proposed 2000--
                                                       Expense      1996 Expense
                 Expense category                    weights \1\       weights         Proposed price proxies
                                                         \2\
----------------------------------------------------------------------------------------------------------------
Total............................................         100.000         100.000
    Physician Earnings \3\.......................          52.466          54.460
        Wages and Salaries.......................          42.730          44.197  AHE--Private.
        Benefits \4\.............................           9.735          10.263  ECI--Ben: Private.
    Physician Practice Expenses..................          47.534          45.540
        Nonphysician Employee Compensation.......          18.654          16.812
            Employee Wages and Salaries..........          13.809          12.424
                Prof/Tech Wages..................           5.887           5.662  ECI-W/S: Private P&T.
                Managerial Wages.................           3.333           2.410  ECI-W/S: Private Admin.
                Clerical Wages...................           3.892           3.830  ECI-W/S: Private Clerical.
                Services Wages...................           0.696           0.522  ECI-W/S: Private Service.
            Employee Benefits \4\................           4.845           4.388  ECI-Ben: Priv. White Collar.
        Office Expenses..........................          12.209          11.581  CPI(U)--Housing
        Professional Liability Insurance.........           3.865           3.152  CMS--Prof. Liab. Phys.
                                                                                    Premiums.
        Medical Equipment........................           2.055           1.878  PPI--Medical Instruments &
                                                                                    Equip.
        Pharmaceuticals and Medical Materials and           4.320           4.516
         Supplies.
            Medical Materials and Supplies.......           2.011  ..............  PPI Surg. Appliances and
                                                                                    Supplies/CPI(U) Med
                                                                                    Supplies.
            Pharmaceuticals......................           2.308  ..............  PPI Ethical Prescription
                                                                                    Preparations.
        Other Professional Expenses..............           6.433           7.601  CPI-U All Items Less Food and
                                                                                    Energy.
----------------------------------------------------------------------------------------------------------------
\1\ Due to rounding, weights may not sum to 100.000 percent.

[[Page 49051]]


\2\ Sources: Physician Socioeconomic Statistics, 2000-2002 Edition (SMS Survey), Physician Socioeconomic
  Statistics, 2003 Edition (PCPS Survey), Center for Health Policy Research, American Medical Association; 2003
  Employment Cost Index, U.S. Department of Labor, Bureau of Labor Statistics; U.S. Department of Commerce,
  Bureau of Economic Analysis 1997 Benchmark Input Output Tables, and U.S. Department of Commerce, Bureau of the
  Census, 2002 Current Population Survey.
\3\ Includes employee physician payroll.
\4\ Includes paid leave.

    To determine the expenditure weights for the proposed rebased and 
revised MEI, we used currently available and statistically valid data 
sources on physician earnings and practice expenses. While we consulted 
numerous data sources, we used five data sources to determine proposed 
MEI expenditure weights: (1) The 2003 AMA Physician Socioeconomic 
Statistics (2000 survey data) for self-employed physicians, (2) the 
2000-2002 AMA Physician Socioeconomic Statistics (1998 data) for self-
employed physicians, (3) the March 2003 BLS Employment Cost Index, (4) 
the 2002 Bureau of the Census CPS, and (5) the Bureau of Economic 
Analysis (BEA) 1997 Benchmark Input-Output tables (I/O). No one data 
source provided all of the information needed to determine expenditure 
weights according to our criteria. The development of each of the cost 
categories using these sources is described in detail below.
b. Physician Earnings
    Like the current MEI, the proposed rebased and revised MEI will use 
AMA data on mean physician net income (physician earnings) for self-
employed physicians to develop a weight for physician earnings. The 
weight for this expense category was based on AMA data for 2000 and was 
calculated as a percentage of total mean expenses (physician earnings 
and practice expenses, including malpractice). The physician earnings 
expenditure category also includes employee physician compensation. 
Currently, physician earnings and overhead expenses generated by 
employee physicians are included in the AMA practice expenses category. 
However, we believe it is appropriate, for our purposes, to place 
employee physician compensation in the MEI cost category of physician 
earnings since employee physician compensation represents actual 
expenditures made in the delivery of services. In addition, including 
employee physician payroll in physician earnings in the MEI is 
consistent with the current payment methodologies in accordance with 
the physician fee schedule, where the work RVU is computed based on 
what service is provided and not on who provides the service. Since 
employee physicians perform the same services as self-employed 
physicians, employee physician time is reflected in the work RVU. By 
including the compensation of employee physicians in the physician 
earnings expense category, these expenses will be adjusted by the 
appropriate price proxies for a physician's own time.
    To obtain further detail for both wages/salaries and benefits, the 
ratio between these categories for 1996 (based on current MEI) was 
updated to 2000 using the growth in the overall employment cost index 
for private employees for wages/salaries and benefits. Alternative data 
for determining this split were not readily available from any other 
source. The main shortcoming of this method is that any changes in 
quantity and intensity (mix of physicians) are not reflected. However, 
faced with the lack of alternative data, we deemed this approach to be 
the most feasible, and the results appear to be consistent with 
anecdotal evidence on this ratio. Its application resulted in a wage-
fringe benefit split of 81.4 and 18.6 percent, respectively, in the 
proposed revised and rebased MEI compared with a wage-fringe benefit 
split of 81.2 and 18.8 percent, respectively in the 1996-based MEI.
c. Physician Practice Expenses
    To determine the remaining individual practice expense weights, we 
updated AMA expense data from 1998 to 2000 using the relative price 
change in an appropriate price index. After the levels were updated to 
2000 values, it was necessary to normalize these levels to equal the 
2000 mean total expense data provided by the 2003 AMA survey. The 
detailed explanations for the derivation of the individual weights are 
listed below.
(i) Nonphysician Employee Compensation
    The cost share for nonphysician employee compensation was developed 
by updating the 1998 AMA Socioeconomic Survey data on nonphysician 
employee compensation costs for self-employed physicians to 2000, using 
the current proxy for this category, and dividing the resulting amount 
into total expenses (physician earnings plus practice expenses) for 
2000 from the AMA survey. We further divided this cost share into 
wages/salaries and benefits using BLS Employment Cost Index data. The 
ECI survey contains data on the proportion of total compensation 
accounted for by wages/salaries and benefits (including paid leave) by 
private industry health services occupational category. These 
proportions can be used to distribute the total non-physician employee 
compensation weight to wages/salaries and benefits for non-physician 
employees. We used 2000 data from the March 2003 publication. Although 
this survey does not contain data specifically for offices of 
physicians, data are available on wage/fringe shares for private 
industry health services, which include hospitals, nursing homes, 
offices of physicians, and offices of dentists. We believe the data for 
health services from the survey do provide a reasonable estimate of the 
split between wages and fringe benefits for employees in physicians' 
offices. Data for 2000 in the ECI survey for total health services