FR Doc 04-17312

[Federal Register: August 5, 2004 (Volume 69, Number 150)]
[Proposed Rules]
[Page 47487-47730]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05au04-28]

[[Page 47487]]

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Part II

Department of Health and Human Services

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Centers for Medicare and Medicaid Services

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42 CFR Parts 405, 410, 411, et al.

Medicare Program; Revisions to Payment Policies Under the Physician Fee
Schedule for Calendar Year 2005; Proposed Rule

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 410, 411, 414, 418, 424, 484, and 486

[CMS-1429-P]
RIN 0938-AM90

Medicare Program; Revisions to Payment Policies Under the
Physician Fee Schedule for Calendar Year 2005

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 proposed policy changes concern:
supplemental survey data for practice expense, updated geographic
practice cost indices for physician work and practice expense, updated
malpractice RVUs, revised requirements for supervision of therapy
assistants, revised payment rules for low osmolar contrast media,
changes to payment policies for physicians and practitioners managing
dialysis patients, clarification of care plan oversight requirements,
revised requirements for supervision of diagnostic psychological
testing services, clarifications to the policies affecting therapy
services, revised requirements for assignment of Medicare claims,
addition to the list of telehealth services, 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.
This proposed rule also addresses the following provisions of the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(MMA): coverage of an initial preventive physical examination; coverage
of cardiovascular screening blood tests; coverage of diabetes screening
tests; incentive payment improvements for physicians in shortage areas;
payment for covered outpatient drugs and biologicals; payment for renal
dialysis services; coverage of routine costs associated with certain
clinical trials of category A devices as defined by the Food and Drug
Administration; hospice consultation service; indexing the Part B
deductible to inflation; extension of coverage of intravenous immune
globulin (IVIG) for the treatment in the home of primary immune
deficiency diseases; revisions to reassignment provisions; clinical
conditions for payment of covered items of durable medical equipment;
and payment for diagnostic mammograms.
In addition, we discuss physicians' services associated with drug
administration services and payment for set-up of portable x-ray
equipment.

DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on September 24,
2004.

ADDRESSES: In commenting, please refer to file code CMS-1429-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of three ways (no duplicates,
please):
1. Electronically. You may submit electronic comments on specific
issues in this regulation to http://www.cms.hhs.gov/regulations/ecomments.
(Attachments should be in Microsoft Word, WordPerfect, or

Excel; however, we prefer Microsoft Word.)
2. By mail. You may mail written comments (one original and two
copies) to the following address ONLY:

Centers for Medicare & Medicaid Services, Department of Health and
Human Services, Attention: CMS-1429-P, P.O. Box 8012, Baltimore, MD
21244-8012.

Please allow sufficient time for mailed comments to be received before
the close of the comment period.
3. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments (one original and two copies) before the
close of the comment period to one of the following addresses. If you
intend to deliver your comments to the Baltimore address, please call
telephone number (410) 786-7197 in advance to schedule your arrival
with one of our staff members.

Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,
Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 21244-
1850.

(Because access to the interior of the HHH Building is not readily
available to persons without Federal Government identification,
commenters are encouraged to leave their comments in the CMS drop slots
located in the main lobby of the building. A stamp-in clock is
available for persons wishing to retain a proof of filing by stamping
in and retaining an extra copy of the comments being filed.)
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
Submission of comments on paperwork requirements. You may submit
comments on this document's paperwork requirements by mailing your
comments to the addresses provided at the end of the ``Collection of
Information Requirements'' section in this document.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:

Pam West (410) 786-2302 (for issues related to Practice Expense,
Respiratory Therapy Coding, and Therapy Supervision).
Rick Ensor (410) 786-5617 (for issues related to Geographic Practice
Cost Index (GPCI) and malpractice RVUs).
Craig Dobyski (410) 786-4584 (for issues related to list of telehealth
services or payments for physicians and practitioners managing dialysis
patients).
Bill Larson or Tiffany Sanders (410) 786-7176 (for issues related to
coverage of an initial preventive physical examination).
Cathleen Scally (410) 786-5714 (for issues related to payment of an
initial preventive physical examination).
Joyce Eng (410) 786-7176 (for issues related to coverage of
cardiovascular screening tests).
Betty Shaw (410) 786-7176 (for issues related to coverage of diabetes
screening tests).
Anita Greenberg (410) 786-0548 (for issues related to payment of
cardiovascular and diabetes screening tests).
David Worgo (410) 786-5919, (for issues related to incentive payment
improvements for physicians practicing in shortage areas).
Angela Mason or Jennifer Fan (410) 786-0548 (for issues related to
payment for covered outpatient drugs and biologicals).
David Walczak (410) 786-4475 (for issues related to reassignment
provisions).
Henry Richter (410) 786-4562 (for issues related to payments for ESRD
facilities).
Steve Berkowitz (410) 786-7176 (for issues related to coverage of
routine costs associated with certain clinical trials of category A
devices).
Terri Deutsch (410) 786-9462 (for issues related to hospice
consultation services).
Karen Daily (410) 786-7176 (for issues related to clinical conditions
for payment of covered items of durable medical equipment).

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Dorothy Shannon (410) 786-3396 (for issues related to outpatient
therapy services performed ``incident to'' physicians' services).
Roberta Epps (410) 786-5919 (for issues related to low osmolar contrast
media or supervision of diagnostic psychological testing services).
Gail Addis (410) 786-4522 (for issues related to care plan oversight).
Diane Milstead (410) 786-3355 or Gaysha Brooks (410) 786-9649 (for all
other issues).

SUPPLEMENTARY INFORMATION:
Submitting Comments: We welcome comments from the public on all
issues set forth in this rule to assist us in fully considering issues
and developing policies. You can assist us by referencing the file code
CMS-1429-P and the specific ``issue identifier'' that precedes the
section on which you choose to comment.
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 the CMS
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.''
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 Related to the Physician
Fee Schedule
A. Resource-Based Practice Expense Relative Value Units (RVUs)
B. Geographic Practice Cost Indices (GPCIs)
C. Malpractice Work RVUs
D. Coding Issues
III. Provisions Related to the Medicare Modernization Act of 2003
A. Section 611--Preventive Physical Examination
B. Section 613--Diabetes Screening
C. Section 612--Cardiovascular Screening
D. Section 413--Incentive Payment for Physician Scarcity
E. Section 303--Payment for Covered Outpatient Drugs and
Biologicals
F. Section 952--Revision to Reassignment Provisions
G. Section 642--Extension of Coverage of IVIG for the Treatment
in the Home of Primary Immune Deficiency Diseases
H. Section 623--Payment for Renal Dialysis Services
I. Section 731--Coverage of Routine Costs for Category A
Clinical Trials
J. Section 629--Part B Deductible
K. Section 512--Hospice Consultation Service
L. Section 302--Clinical Conditions for Coverage of Durable
Medical Equipment (DME)
M. Section 614--Payment for Certain Mammography Services
N. Section 305--Payment for Inhalation Drugs
IV. Other Issues
A. Provisions Related to Therapy Services
1. Outpatient Therapy Services Performed ``Incident to''
Physicians'' Services
2. Supervision Requirements for Therapy Assistants in Private
Practice
3. Other Technical Revisions
B. Low Osmolar Contrast Media
C. Payments for Physicians and Practitioners Managing Dialysis
Patients
D. Technical Revision--Sec. 411.404
E. Supervision of Clinical Psychological Testing
F. Care Plan Oversight
G. Assignment of Medicare Claims--Payment to the Supplier
V. Collection of Information Requirements
VI. Response to Comments
VII. Regulatory Impact Analysis
Addendum A--Explanation and Use of Addendum B.
Addendum B--2005 Relative Value Units and Related Information Used
in Determining Medicare Payments for 2005.
Addendum C--Codes for Which We Received PEAC Recommendations on
Practice Expense Direct Cost Inputs.
Addendum D--Proposed Changes to Practice Expense Equipment
Description and Pricing.
Addendum E--Revised 2005 Office Rental Index Versus Current Office
Rental Index by 2004 Fee Schedule Area
Addendum F--Current Geographic Practice Cost Indices by Medicare
Carrier and Locality
Addendum G--Proposed 2005 Geographic Practice Cost Indices by
Medicare Carrier and Locality
Addendum H--Proposed 2006 Geographic Practice Cost Indices by
Medicare Carrier and Locality
Addendum I--Comparison of Current 2004 Geographic Adjustment Factors
(GAFs) to Proposed 2005 GAFS
Addendum J--Comparison of Current 2004 GAFs to Proposed 2006 GAFs

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:

ACC American College of Cardiology
ACR American College of Radiology
AMA American Medical Association
APA American Psychological Association
ASP Average Sales Price
ATA American Telemedicine Association
BBA Balanced Budget Act of 1997
BBRA Balanced Budget Refinement Act of 1999
BIPA Benefits Improvement and Protection Act of 2000
BLS Bureau of Labor Statistics
CAH Critical Access Hospital
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
CY Calendar Year
E/M Evaluation and management
ESRD End-Stage Renal Disease
FMR Fair market rental
FY Fiscal Year
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

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HOCM High osmolar contrast media
HPSA Health Professional Shortage Area
HRSA Health Resources and Services Administration
IDTFs Independent Diagnostic Testing Facilities
IPPS Inpatient prospective payment system
IOM Internet Only Manual
ISO Insurance Services Office
LOCM Low osmolar contrast media
MCM Medicare Carrier Manual
MCP Monthly Capitation Payment
MedPAC Medicare Payment Advisory Commission
MEI Medicare Economic Index
MGMA Medical Group Management Association
MMA Medicare Prescription Drug, Improvement, and Modernization Act
of 2003
MPFS Medicare Physician Fee Schedule
MSA Metropolitan Statistical Area
NAMCS National Ambulatory Medical Care Survey
NP Nurse Practitioner
OBRA Omnibus Budget Reconciliation Act
OMB Office of Management and Budget
OPPS Outpatient prospective payment system
PA Physician Assistant
PC Professional component
PCF Patient compensation fund
PEAC Practice Expense Advisory Committee
PET Positron Emission Tomography
PHSA Public Health Services Act
PPS Prospective payment system
PSA Physician Scarcity Area
RN Registered Nurse
RUC [AMA's Specialty Society] Relative [Value] Update Committee
RUCA Rural-Urban Commuting Area
RVU Relative value unit
SCHIP State Child Health Insurance Program
SGR Sustainable growth rate
SLP Speech language pathology
SMS [AMA's] Socioeconomic Monitoring System
TC Technical component
USPSTF U.S. Preventive Services Task Force

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.'' 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

The July 2000 and August 2003 proposed rules ((65 FR 44177) and (68
FR 49030), respectively), include a summary of the final physician fee
schedule rules published through February 2003.
In the November 7, 2003 final rule, we refined the resource-based
practice expense RVUs and made other changes to Medicare Part B payment
policy. The specific policy changes concerned: The 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. In addition, this rule updated the codes subject
to the physician self-referral prohibition. We also made revisions to
the sustainable growth rate, the anesthesia conversion factor and
finalized the CY 2003 interim RVUs and issued interim RVUs for new and
revised procedure codes for CY 2004.
As required by the statute, we announced that the physician fee
schedule update for CY 2004 would be -4.5 percent; the initial estimate
of the sustainable growth rate for CY 2004 was 7.4 percent; and the
conversion factor for CY 2004 was $35.1339.
Subsequent to the November 7, 2003 final rule, the Congress enacted
the MMA (Pub. L. 108-17). On January 7, 2004, an interim final rule was
published to implement provisions of the MMA applicable in 2004 to
Medicare payment for covered drugs and physician fee schedule services.
These provisions included--
Revising the current payment methodology for Part B
covered drugs and biologicals that are not paid on a cost or
prospective payment basis;
Making changes to Medicare payment for furnishing or
administering drugs and biologicals;
Revising the geographic practice cost indices;
Changing the physician fee schedule conversion factor. The
2004 physician fee schedule conversion factor is $37.3374; and
Extending the ``opt-out'' provisions of section
1802(b)(5)(3) of the Act to dentists, podiatrists, and optometrists.
The information contained in the January 7, 2004 interim final rule
concerning payment under the physician fee schedule superceded
information contained in the November 7, 2003 final rule to the extent
that the two are inconsistent.

II. Provisions of the Proposed Rule

This proposed rule would affect the regulations set forth at Part
405, Federal Health Insurance for the Aged and Disabled; Part 410,
Supplementary Medical Insurance (SMI) Benefits; Part 411, Exclusions
from Medicare and Limitations on Medicare Payment; Part 414, Payment
for Part B Medical and Other Health Services; Part 418, Hospice Care;
Part 424, Conditions for Medicare Payment; Part 484, Home Health
Services; and Part 486, Conditions for Coverage of Specialized Services
Furnished by Suppliers.

A. Resource-Based Practice Expense Relative Value Units

[If you choose to comment on issues in this section, please include the
caption ``Practice Expense'' at the beginning of your comments.]
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, amended section
1848(c)(2)(C)(ii) of the Social Security Act and required us to develop
a methodology for a resource-based system for determining practice
expense RVUs for each physician's service beginning in 1998. Until that
time, physicians' practice expenses were established based on
historical allowed charges.
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)(C)(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)

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enacted on November 29, 1999. Section 212 of the BBRA amended section
1848(c)(2)(C)(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. (The 1999
and 2003 final rules (64 FR 59380 and 68 FR 63196, respectively,
extended the period during which we would accept supplemental data.)
2. Current Methodology for Computing the Practice Expense Relative
Value Unit System
In the November 2, 1998 final rule (63 FR 58910), effective with
services furnished on or after January 1, 1999, we established at 42
CFR 414.22(b)(5) 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 CPEP data were
collected from panels of physicians, practice administrators, and
nonphysicians (for example registered nurses) nominated by physician
specialty societies and other groups. The CPEP panels identified the
direct inputs required for each physician service in both the office
setting and out-of-office setting. The AMA's SMS data provided
aggregate specialty-specific information on hours worked and practice
expenses. 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.
Also in the November 2, 1998 final rule, in response to comments,
we discussed the establishment of the Practice Expense Advisory
Committee (PEAC) of the AMA's Specialty Society Relative Value Update
Committee (RUC), which would review code-specific CPEP data during the
refinement period. This committee would include representatives from
all major specialty societies and would make recommendations to us on
suggested changes to the CPEP data.
As directed by the BBRA, we also established a process (see 65 FR
65380) under which we would accept and use, to the maximum extent
practicable and consistent with sound data practices, data collected by
entities and organizations to supplement the data we normally collect
in determining the practice expense component of the physician fee
schedule.
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.)
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.
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. The primary sources for the
physician time data were surveys submitted to the AMA's RUC and surveys
done by Harvard for the establishment of the work RVUs. We then
multiplied the physician time assigned per procedure code by the number
of times that code was billed by each specialty, and summed the
products for each code, by specialty, to get the total physician hours
spent treating Medicare patients for that specialty. We then calculated
the specialty specific practice expense pools by multiplying the
specialty practice expenses per hour (from step 1) by the total
Medicare physician hours for the specialty.
Step 3--Allocate the specialty specific practice expense
pool to the specific services (procedure codes) 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. For the separate practice expense pool for services
without physician work RVUs, we have used, on an interim basis, 1998
practice expense RVUs to allocate the direct cost pools.
(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, or the 1998 practice expense
RVUs, in combination 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).
Step 4--The direct and indirect costs are then added
together to attain the practice expense for each procedure, by
specialty. For procedures performed by more than one specialty, the
final practice expense allocation was a weighted average of practice
expense allocations for the specialties that perform the procedure,
based on the frequency with which each specialty performs the procedure
on Medicare patients.
b. Other Methodological Issues
i. Nonphysician Work Pool
As an interim measure, until we could further analyze the effect of
the top-down methodology on the Medicare payment 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. We first used the average clinical
staff time from the CPEP data and the ``all physicians'' practice
expense per hour to create the pool. In the December 2002 final rule,
we changed this policy and now use the total clinical staff time and
the weighted average specialty-specific practice expense per hour for
specialties with services in this pool. In the next step, we used the
adjusted 1998 practice expense RVUs to allocate this pool to each
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 interim measure to allocate the direct
practice expense cost pool for radiology.
A specialty society may request that its services be removed from
the nonphysician workpool. We have removed services from the
nonphysician work pool if the requesting specialty predominates
utilization of the service.

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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 2005
a. Supplemental Practice Expense Surveys
i. Survey Criteria and Submission Dates
As required by the BBRA, we established criteria to evaluate survey
data collected by organizations to supplement the SMS survey data
normally used in the calculation of the practice expense component of
the physician fee schedule. By regulation (see 68 FR 63200), we
provided that, beginning this year, supplemental survey data must be
submitted by March 1 to be considered for use in computing practice
expense RVUs for the following year. This allows us to publish our
decisions regarding survey data in the proposed rule and provides the
opportunity for public comment on these results before implementation.
To continue to ensure the maximum opportunity for specialties to
submit supplemental practice expense data, we extended until 2005 the
period that we would accept survey data that meet the criteria set
forth in the November 2000 final rule. We will no longer accept
supplemental practice expense data after that point. The deadline for
submission of supplemental data to be considered in CY 2006 is March 1,
2005.
ii. Survey by the College of American Pathologists (CAP)
In the June 28, 2002 Federal Register (67 FR 43849), we proposed a
technical change to the practice expense methodology that calculated
the technical component as the difference between the global and
professional component RVUs for services not included in the
nonphysician work pool. In the December 31, 2002 final rule (67 FR
79979), we established a 1-year moratorium on the technical change for
pathology services to allow CAP to do a survey of independent
laboratories. Consistent with last year's rules, CAP submitted its
supplemental survey by August 1, 2003 for use in determining the 2004
practice expense RVUs. Our contractor, The Lewin Group, evaluated the
data and recommended that we accept the survey to supplement the data
on PE. However, because we changed the survey deadline to March 1, CAP
requested that we delay incorporation of the survey data until this
year's proposed rule. CAP also requested that we extend the moratorium
on calculating the technical component as the difference between the
global and professional component RVUs for pathology services for one
additional year to allow us to evaluate in a proposed rule the combined
effects of the use of the new survey data along with other proposed
technical changes. In the November 7, 2003 final rule, in response to
the CAP comment, we agreed to extend the moratorium by an additional
year. In this proposed rule, we propose to incorporate the CAP survey
data into the practice expense methodology and to end the moratorium on
calculating the technical component as the difference between the
global and professional component RVUs for pathology services. We
propose to use the following practice expense per hour figures for
specialty 69--Independent Laboratory.

Table 1.--Practice Expense Per Hour Figures for Specialty 69--Independent Laboratory
--------------------------------------------------------------------------------------------------------------------------------------------------------
Clinical Office Medical Medical
Specialty staff Admin. staff expense supplies equipment Other Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Independent Laboratory................................ $39.7 $37.5 $40.1 $19.3 $11.1 $16.1 $163.8
--------------------------------------------------------------------------------------------------------------------------------------------------------

iii. Submission of Supplemental Surveys
We received surveys from the American College of Cardiology (ACC),
the American College of Radiology (ACR), and the American Society for
Therapeutic Radiation Oncology (ASTRO). Our contractor, The Lewin
Group, evaluated the data and made recommendations to us regarding use
of the data in a report on May 26, 2004. We have made The Lewin Group
report available on the CMS Web site at http://www.cms.hhs.gov/physicians/
pfs/. The Lewin Group is recommending that we accept the

data from ACC and ACR but indicated that the survey from ASTRO does not
meet the precision criteria we have established for supplemental
surveys. As a result, The Lewin Group is not recommending that we use
the ASTRO survey results at this time. We agree with this
recommendation and are proposing not using the ASTRO survey data at
this time.
Many of the procedures that are performed by radiology, cardiology,
and radiation oncology are affected by the nonphysician work pool
calculations. We created the nonphysician work pool as an interim
measure because of a concern that the top-down methodology was having a
large adverse impact on payment for services that do not have physician
work RVUs. As we stated in the December 31, 2002 final rule (67 FR
79979), we believe a relatively low practice expense per hour explains
the adverse impact on diagnostic and other services that would occur
from eliminating the nonphysician work pool. The ACR, ACC, and ASTRO
began undertaking surveys in 2003 following our analysis of options for
eliminating the nonphysician work pool in the December 31, 2002 final
rule. CMS' interest is in using the supplemental survey data to
eliminate the nonphysician work pool and use a single methodology to
establish payments for all physician fee schedule services.
We appreciate the efforts of these three specialties to undertake
surveys and assist CMS in finding a permanent resolution of issues
related to the nonphysician work pool. While the radiology survey data
do meet the criteria we have established for use of supplemental
surveys, the ACR has written to us asking that we not use the data
until we have a stable and global solution that is workable for all
specialties that are currently paid using the nonphysician work pool.
The ACC also requested that we use the supplemental survey for services
that are in the cardiology pool. However, ACC also indicated if CMS
determines that it would only be appropriate to use the survey data if
cardiology services are removed from the nonphysician work pool or if
the nonphysician work pool

[[Page 47493]]

is eliminated, we should delay using the data until the issues involved
can be discussed further.
At this time, we are not proposing to eliminate the nonphysician
work pool or to remove selected radiology and cardiology codes from it.
Since our interest is in using supplemental data in conjunction with
pricing all services under the top-down methodology, we agree with the
request from ACR to delay use of its supplemental survey until issues
related to the nonphysician work pool can be addressed. Furthermore, we
believe the high practice expense per hour for cardiology from the
supplemental survey results from the inclusion of practices that do
very high cost office-based cardiology services. Because the RVUs for
these office-based cardiology services are currently determined using
the nonphysician work pool methodology, we believe the ACC supplemental
survey data should only be used in conjunction with removing cardiology
services from the nonphysician work pool. For this reason, we are also
delaying use of the ACC survey data as we continue to analyze
elimination of the nonphysician work pool in conjunction with using
supplemental survey data. As we complete our analysis, we look forward
to working with the medical community to find a permanent resolution of
this issue.
b. Practice Expense Advisory Committee (PEAC) Recommendations on CPEP
Inputs for 2005
Since 1999, the PEAC, an advisory committee of the RUC, has been
providing us with recommendations for refining the direct practice
expense inputs (clinical staff, supplies, and equipment) for existing
CPT codes. As we did last year, we are including our proposals
regarding the PEAC recommendations in the proposed rule, to enable
specialty groups to assess the impact of the proposed changes on their
services and to make comments on them before the final rule.
These PEAC recommendations are the result of meetings held in March
and August 2003 and January and March 2004, and account for over 2,200
codes from many specialties. (A list of these codes can be found in
Addendum C.)
The PEAC held its last meeting in March 2004, and these are the
last recommendations we will be receiving from the committee. The AMA
established the PEAC to assist the RUC in refining the direct input
data used in calculating the practice expense RVUs for established
codes. Since its inception, the PEAC has provided recommendations on
over 7,600 codes, which leaves only a few hundred physician fee
schedule codes that we believe are still unrefined. The PEAC has also
recommended standard times for many clinical staff activities and has
established several supply and equipment packages that can be applied
across wide ranges of codes. This has helped us ensure that the CPEP
inputs have been assigned equitably across procedures performed by
different specialties. The work of the PEAC has, therefore, contributed
greatly to the refinement of the practice expense inputs, and we
appreciate the 5 years of hard work by the specialty societies and the
AMA that helped make the PEAC so successful. Future practice expense
issues, including the refinement of the remaining codes not addressed
by the PEAC, will be handled by the RUC. We anticipate the RUC will
formulate the specific process at a future meeting, possibly as soon as
October 2004. If possible, additional information on this process will
be included in the final fee schedule rule.
We have reviewed the PEAC-submitted recommendations and propose to
adopt nearly all of them. We have worked with the PEAC staff to correct
any typographical errors and to make certain that the recommendations
are in line with previously accepted standards. In addition, in order
to prevent rank order anomalies, we reviewed those codes that are
currently unrefined or that were refined early in the PEAC process to
apply some of the major PEAC-agreed standards. For the unrefined 10-day
global services, we are proposing to substitute for the original CPEP
times the PEAC-agreed standard post-service office visit clinical staff
times used for all 90-day and refined 10-day global services. We also
are proposing to eliminate the discharge management clinical staff time
from all but the 10 and 90-day global codes, substituting one post-
service phone call if not already in the earlier data. Lastly, we are
proposing to delete any extra clinical staff time for post-visit phone
calls because that time is already included in the time allotted for
the visits.
The complete PEAC recommendations and the revised practice expense
database can be found on our web site. (See the ``Supplementary
Information'' section of this proposed rule for directions on accessing
our website.)
We disagree with the PEAC recommendation for clinical labor time
for CPT 99183, Hyperbaric oxygen (HBO) therapy. During last year's
rulemaking, we assigned, on an interim basis, 135 minutes of total
clinical labor. The PEAC however, recommended 42 minutes of total
clinical labor time, which allows for 20 minutes for the HBO chamber
treatment (intra) time. We believe that 90 minutes is a more
appropriate estimation of the clinical staff time actually needed for
the intra time because, according to our data, a typical HBO treatment
session billed under the outpatient prospective payment system is 90
minutes and the clinical staff is in constant attendance. Therefore, we
are proposing a total clinical labor time of 112 minutes for this
service.
The PEAC recommendations for CPT codes 91011 and 91052 included a
supply input for methacholine chloride as the injected stimulant for
these two services. In discussions with representatives from the
gastroenterology specialty subsequent to receipt of the PEAC
recommendations, we learned this is incorrect, since an injected form
of methacholine chloride is not currently available. For CPT 91011,
esophageal motility study, we are proposing to include edrophonium, 1
ml, as the drug typically used in this procedure. For CPT 91052,
gastric analysis study, we were unable to identify the single drug that
is most typically used with this procedure. We have added the
edrophonium to the list of supplies where we need information from the
specialty in order to price appropriately (see Table 3). We are also
requesting that commenters, particularly the specialty organizations,
provide us with information on the drug that is most typically used for
CPT 91052, including drug dosage and price, so that it can be included
in the practice expense database.
In last year's final rule, we indicated that we would not go
forward with the 2003 PEAC recommendations on eight E/M codes for
nursing home services, CPT codes 99301 through 99316 and on two E/M
codes for home visits, CPT codes 99348 and 99350, to allow the PEAC to
reconsider the clinical staff time for these codes based on the
specific input from the representatives of the nursing home and home
visit specialties. This year's PEAC recommendations for the E/M nursing
home services included the views of the long-term care physicians and
represent an overall decrease in clinical labor inputs for these codes.
However, the home care physicians subsequently withdrew these codes
from further PEAC consideration, which leaves the 2003 PEAC
recommendation for these services unchanged. Therefore, we are
proposing to adopt the direct practice expense input recommendations
from

[[Page 47494]]

the March 2003 PEAC meeting for CPT codes 99348 and 99350.
c. Repricing of Clinical Practice Expense Inputs--Equipment
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 equipment inputs assigned by
the CPEP panels were determined in 1997 by our contractor, Abt
Associates, based primarily on list prices from equipment suppliers.
Subsequent to the CPEP panels, equipment has also been added to the
CPEP data, with the costs of the inputs provided by the relevant
specialty society. We only include equipment with costs equal to or
exceeding $500 in our practice expense database because the cost per
use for equipment costing less than $500 would be negligible. We also
considered the useful life of the equipment in establishing an
equipment cost per minute of use. This was discussed in our proposed
rule published June 18, 1997 (62 FR 33164). The primary source of this
information was the ``Estimated Useful Lives of Depreciable Hospital
Assets'' (1993 edition) from the American Hospital Association (AHA).
We proposed updates and revisions to the clinical staff salary data
and supply inputs and finalized these in the rules published November
1, 2001 (66 FR 55255) and November 7, 2003 (68 FR 63196), respectively.
We also indicated that, in future rulemaking, we would be proposing
updates to the equipment inputs that are used in the CPEP database.
We contracted with a consultant to assist us in obtaining the
current price for each equipment item in our CPEP database. The
consultant has been able to determine the current prices for most of
the equipment inputs and, to ensure that accurate information was
obtained, has submitted documentation from vendor catalogs or websites
for nearly 600 equipment items.
Our contractor also clarified the specific composition of each of
the various packaged and standardized rooms or ophthalmology ``lanes''
currently identified in the equipment practice expense database (for
example, ``mammography room'' or ``exam lane''). We are proposing to
delete the current ``room'' designation for the radiopharmaceutical
receiving area and, in its place, list separately the equipment
necessary for each procedure as individual line items because there
does not appear to be a standard configuration for such a room across
the nuclear medicine codes.
Although individual equipment items valued under $500 are not
included in the equipment database, we do include instrument packs or
surgical trays that are maintained, stored, and used as a unit, where
the aggregate cost of individual items equals or exceeds $500. We have
adopted the PEAC recommendation based on consensus among specialties to
establish two generic instrument packages rather than list a myriad of
different packages for each specialty. The basic instrument pack,
assigned a value of $500, includes instrument aggregate costs ranging
from $500 to $1,499. The medium pack was assigned $1,500, for
instrument packages priced at or above $1,500. We are proposing to
replace all surgical packs and trays in the practice expense database
with the appropriate standardized packs described above.
Our consultant worked closely with the specialty societies to
obtain accurate information to identify equipment and applicable
prices. The useful life for each equipment item has also been reviewed
and updated as necessary. This update is primarily based on the AHA's
``Estimated Useful Lives of Depreciable Hospital Assets'' (1998
edition) by direct association with a listed item in the publication or
by crosswalking from a reasonably similar item. We understand that AHA
will publish updated guidelines this summer, and we plan to reflect any
updates in our final rule.
Addendum D lists the proposed new prices for equipment items,
instrument packs, and rooms/lanes, as well as new descriptions when
needed. A more detailed spreadsheet can be found on our website, http://www.cms.hhs.gov/physicians/pfs.
This spreadsheet contains additional

information regarding the sources used to price each equipment item.
Additionally, there are specific equipment items for which a source
has not yet been identified or for which pricing information has not
yet been found and documented. These are included in Table 2 below. In
this table, we have identified the equipment code (if assigned), the
existing description for the equipment item and current price, the
procedures or specialties associated with the item, as well as the
proposed new description and standardized life for the equipment's use,
where this could be identified. We have also identified equipment for
deletion from the database, such as equipment items less than $500 and
items that have become obsolete. We are requesting that commenters,
particularly the relevant specialty groups, provide us with the needed
pricing information, including appropriate documentation. Whenever
possible, commenters should provide multiple sources of documentation
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.

Table 2.--Equipment Items Needing Specialty Input for Pricing and Proposed Deletions
----------------------------------------------------------------------------------------------------------------
Primary
specialties *CPT code(s)
Code 2005 description Price associated with associated with Status of item
item item
----------------------------------------------------------------------------------------------------------------
Ambulatory blood 3,000.00 Cardiology....... 93784, 93786, See Note A.
pressure monitor. 93788.
Biofeedback .............. Psychology....... 90875............ See Note A.
equipment.
CAD processor unit 210,000.00 Radiology........ 76082, 76083, See Note A (Need
(mammography). 76085. system
components).
E53005............. Camera system, 675,000.00 Anesthesia, IM, 78414............ See Note A.
cardiac, nuclear. cardiology.
E53026............. Collimator, 29,990.00 Radiology........ 78206, 78607, See Note A.
cardiofocal set. 78647, 78803,
78807.
E71013............. Computer and VDT 9,000.00 Ophthalmology, 92060, 92065..... See Notes A and
and software. optometry. C.
Computer software, 60,000.00 Radiation 77301............ See Note A.
MR/PET/CT fusion. oncology.
E51022............. Computer system, 60,000.00 Radiation 77418............ See Note A.
record and verify. oncology.

[[Page 47495]]

E51050............. Computer 221,500.00 Radiation 77300, 77305, See Note A.
workstation, 3D oncology. 77310, 77315,
teletherapy 77321, 77331.
treatment
planning.
Computer .............. Radiology........ 71555, 72159, See Note A.
workstation, MRA 72198, 73225,
post processing. 73725, 74185.
Computer, server.. .............. Radiation 77301............ See Note A. (Need
oncology. system
components).
Cortical bipolar- .............. Neurosurgery, 95961, 95962..... See Note A.
biphasic neurology.
stimulating
equipment.
CPAP/BiPAP remote .............. Pulmonary 95811............ See Note A.
clinical unit. disease,
neurology.
Cryo-thermal unit. .............. Anesthesia....... 64620............ See Notes A and
C.
E53034............. Densitometry unit, 65,000.00 Radiology........ 78351............ See Notes A and
whole body, DPA. C.
E53032............. Densitometry unit, 22,500.00 Radiology........ 78350............ See Notes A and
whole body, SPA. C.
E53036............. Detector (Probe).. 14,000.00 Radiology, 78455............ See Notes A and
cardiology. C.
Dialysis access 10,000.00 Nephrology....... 90940............ See Note A.
flow monitor.
Diathermy, .............. Anesthesia, GP, 97020............ See Notes A and
microwave. podiatry. C.
DNA image analyzer 200,000.00 Lab, pathology... 88358, 88361..... See Note A.
(ACIS).
Drill, .............. Ophthalmology.... 65125............ See Note A.
ophthalmology.
E55035............. ECG signal 8,250.00 Cardiology, IM... 93278............ See Note A.
averaging system.
EEG monitor, .............. 95953............ Neurology........ See Note A.
digital, portable.
E54008............. EEG recorder, 6,940.00 Neurology........ 95950............ See Note A.
ambulatory.
E54009............. EEG review 44,950.00 Neurology........ 95950............ See Note A.
station,
ambulatory.
Electroconvulsive .............. Psychiatry....... 90870............ See Note A.
therapy machine.
Electromagnetic 25,000.00 Physical therapy. G0329............ See Note A.
therapy machine.
E54012............. EMG botox......... 1,500.00 Critical care, 92265............ See Note A.
pulmonary,
ophthalmology.
E52002............. Fetal monitor 35,000.00 Ob-gyn, radiology 76818, 76819..... See Note A.
software.
Film alternator 27,500.00 Radiology........ 329 codes........ See Note B.
(motorized film
viewbox).
Generator, 950.00 Neurology, NP.... 95923............ See Note A.
constant current.
E51072............. HDR Afterload 375,000.00 Radiation 77781-84......... See Note A.
System, oncology.
Nucletron--Oldelf
t.
Hyperbaric chamber 125,000.00 FP, IM, EM....... 99183............ See Note A.
Hyperthermia 360,000.00 Radiation 77600............ See Note A.
system, oncology.
ultrasound,
external.
Hyperthermia 250,000.00 Radiation 77620............ See Note A.
system, oncology.
ultrasound,
intracavitary.
Hysteroscopy 19,500.00 Ob-gyn........... 58563............ See Note A.
ablation system.
E13652............. image analyzer 92,000.00 Pathology, 88355, 88356..... See Note A.
(CAS system). neurology.
IMRT physics tools 55,485.00 Radiation 77301, 77418..... See Note A.
oncology.
E91008............. IVAC Injection 2,500.00 Radiology........ 78206, 78607, See Note A.
Automatic Pump. 78647, 78803,
78807.
Mammography .............. Radiology........ 76090, 76091, See Note A.
reporting 76092.
software.
E12002............. Neurobehavioral 717.00 Psychology, IM... 96115, 96117..... See Note A.
status instrument-
average.
Orthovoltage 140,000.00 Radiation 77401............ See Note A.
radiotherapy oncology.
system.
OSHA ventilated 5,000.00 Radiation 77334............ See Note B.
hood. oncology.
E91011............. Plasma pheresis 37,900.00 Radiology, 36481, 36510, See Note A.
machine w/UV dermatology. 36522.
light source.
E55013............. Programmer, 10,000.00 Cardiology, 33200-01, 33206- See Note A.
pacemaker. cardiothoracic 08, 33212-18,
surgery, general 33220, 33222,
surgery. 33240, 33245-46,
33249, 33282.

[[Page 47496]]

Pulse oxymetry 3,660.00 Pulmonary 94762............ See Note A.
recording disease, IM.
software
(prolonged
monitoring).
Radiation 550,670.00 Radiation 774XX............ See Note B.
treatment vault. oncology.
Radiation virtual .............. Radiation 77280, 77285, See Note A.
simulation system. oncology. 77290, 77402-16.
Remote monitoring 9,500.00 Neurology........ 95955............ See Note A.
service
(neurodiagnostics
).
E54010............. Review master..... 23,500.00 Pulmonary 95805, 95807-11, See Note A.
disease, 95816, 95822,
neurology. 95955-56.
E51004............. Room, basic 150,000.00 Radiology........ 103 codes........ See Note A.
radiology.
E51016............. Room, mammography. 130,000.00 Radiology........ 19030, 19290-91, See Note A.
19295, 76086-92,
76096.
E51005............. Room, radiographic- 475,000.00 ................. 123 codes........ See Note A.
fluoroscopic.
Source, 10 Ci Ir 22,000.00 Radiation 77781-84......... See Note A.
192. oncology.
Strontium-90 8,599.00 Radiation 77789............ See Note A.
applicator. oncology.
Table, cystoscopy. .............. urology.......... 52204-24, 52265- See Note A.
75 52310-17,
52327-32.
E52001............. Ultrasound color 155,000.00 Ob-gyn........... 59070, 59074, See Note A.
doppler, 76818-19.
transducers and
vaginal probe.
E52007............. Ultrasound, 29,900.00 Ob-gyn, 76825-28, 93303- See Note A.
echocardiography cardiology, 12, 93314,
digital pediatrics. 93320, 93325,
acquisition (Novo 93350.
Microsonics,
TomTec).
Vacuum cart....... .............. Anesthesia....... 64620............ See Notes A and
C.
E13635............. Video camera...... 1,000.00 Radiation 77418............ See Note A.
oncology.
Water chiller 28,000.00 Radiation 77402-16......... See Note B.
(radiation oncology.
treatment).
E51076............. Well counter...... .............. Radiology........ 78160-72, 78282.. See Note A.
----------------------------------------------------------------------------------------------------------------
*CPT codes and descriptions only are copyright 2004 American Medical Association. All Rights Reserved.
Applicable FARS/DFARS apply.
Notes:
A. Additional information required. Need detailed description (including system components as specified),
source, and current pricing information.
B. Proposed deletion as indirect expense.
C. Item may no longer be available.

In addition to reviewing and updating the cost information for
equipment items in the database, our contractor also recommended the
following revisions to provide uniformity and consistency in the CPEP
equipment database. All of the following recommendations are noted in
Addendum D:
Assignment of equipment categories. In the original CPEP data, a
number was assigned to each item of equipment. The contractor has
recommended that each equipment item also be assigned a ``category'' to
allow for easier identification and sorting of items. We agree and are
proposing that equipment be assigned to one of the following six
categories: documentation, laboratory, scopes, radiology, furniture,
rooms-lanes, and other equipment.
These categories could also be used to establish a new numbering
system for equipment that would more clearly identify them for practice
expense purposes. We would assign a letter to each category and use
this in conjunction with a number (000 through 999) to identify each
item of equipment. This would enable specialty groups to identify more
easily whether an item of equipment has already been included in the
practice expense database and would help avoid duplication of
references to the same item of equipment under different descriptions.
If we proceed in the final rule with this proposed method for
categorizing equipment, we will assign new identifying numbers to each
equipment input item and these will be available on our website.
Consolidation/standardization of item descriptions.
When items appear to be duplicative, we are proposing to combine
the items. For example, for two cervical endoscopy procedures, our
contractor identified that the price of the LEEP system includes a
smoke evacuation system but that system is also listed separately. We
propose to merge these two line items and reflect both prices in the
price of the LEEP system. All proposed changes are specifically
referenced in Addendum D.
We welcome any comments on the proposed pricing and all other
proposed revisions. To help us evaluate the information provided,
comments should include documentation from more than one source, where
available, such as information from a vendor catalog or website or from
a current invoice.
d. Miscellaneous Practice Expense Issues
i. Pricing for Seldinger Needle
We received comments from a specialty organization on our November
7, 2003 rule stating that the $72.90 price assigned to the Seldinger
needle, which is used in certain radiological procedures, is too high.
The organization estimated that the cost is actually closer to $7.00;
however, documentation was not provided to

[[Page 47497]]

support this price estimate. Our contractor was able to confirm pricing
information from two sources, including a price of $3.50 from a
hospital supplier and a price of $6.85 from a cardiology supplier.
Based on this pricing variability, we are proposing to average the two
prices of this supply item to reflect a cost of $5.175. If a commenter
disagrees with this proposed change in price, the comment should
provide documentation to support the recommended price, as well as the
specific type of needle that is most commonly used.
ii. Hysteroscopic Endometrial Ablation
We received requests from a manufacturer and physicians to price
CPT code 56853, Hysteroscopy with endometrial ablation, in the office
setting so that physicians providing this service in the nonfacility
setting could receive an appropriate payment. (This service is
currently valued only in the facility setting.) We have worked with the
specialty society, the American College of Obstetricians and
Gynecologists, to identify the required resources based on the typical
practice. We propose to assign on an interim basis, the following
direct practice expense inputs in the nonfacility setting for this
service.
Clinical Staff: RN/LPN/MTA--72 minutes (18 pre-service and
54 service)
Supplies: PEAC multispecialty visit supply package, Post-
op incision care kit, pelvic exam package, irrigation tubing, sterile
impervious gown, surgical cap, shoe cover, surgical mask with face
shield, 3x3 sterile gauze (20), cotton tip applicator, cotton balls
(4), irrigation 0.9 percent sodium chloride 500-1000ml(3), maxi-pad,
mini-pad, 3-pack betadine swab (4), Monsel's solution (10ml), lidocaine
jelly (1000ml), disposable speculum, spinal needle, 18-24g needle, 20
ml syringe, bupivicaine 0.25 percent (10ml), 1 percent xylocaine
(20ml), cidex (10ml), Polaroid film-type 667 (2), endosheath, and
hysteroscopic ablation device kit.
Equipment: power table, fiberoptic exam light, endoscopic-
rigid hysteroscope, endoscopy video system, and hysteroscopic ablation
system.
We will request that the RUC review these inputs along with inputs
of other codes still in need of refinement. iii. Photopheresis
We received a request from a supplier to review the direct practice
expense inputs currently in our database for the photopheresis service,
CPT code 36522. These inputs are based on the original CPEP panel
recommendations and the supplier does not believe they are reflective
of the resources now being used. This service was not reviewed by the
PEAC during the refinement process, and we agree that the direct inputs
need to be revised for this service. We propose to assign, on an
interim basis, the following nonfacility practice expense inputs, and
we will request that the RUC review them as part of the practice
expense refinement process.
Clinical Staff: RN--223 minutes (treatment is for
approximately 4 hours)
Supplies: multispecialty visit supply package,
photopheresis procedural kit, blood filter (filter iv set), IV blood
administration set, 0.9 percent irrigation sodium chloride 500-1000 ml
(2), heparin 1,000 units-ml (10), povidone solution-betadine,
methoxsalen (UVADEX) sterile solution-10 ml vial, 1 percent-2 percent
lidocaine-xylocaine, paper surgical tape (12), 2x3 underpad (chux),
nonsterile drapesheet 40 inches x 60 inches, nonsterile Kling bandage,
bandage strip, 3x3 sterile gauze, 4x4 sterile gauze, alcohol swab pad
(3), impervious staff gown, 19-25 g butterfly needle, 14-24g
angiocatheter, 18-27 g needle, 20 ml syringe, 10-12 ml syringe, 1 ml
syringe, 22-26 g syringe needle-3 ml.
Equipment: plasma pheresis machine with ultraviolet light
source, medical recliner.
iv. Pricing of New Supply Items
As part of last year's rulemaking process, we reviewed and updated
the prices for supply items in our practice expense database. During
subsequent meetings of both the PEAC and the RUC, supply items were
added that were not included in the supply pricing update. The
following table, Proposed Practice Expense Supply Item Additions for
2005, lists these additional supply items and the proposed associated
prices that we will use in the practice expense calculation.

Table 3.--Proposed Practice Expense Supply Item Additions for 2004
--------------------------------------------------------------------------------------------------------------------------------------------------------
* CPT code(s)
Supply description Unit price * Unit associated with item Supply category
--------------------------------------------------------------------------------------------------------------------------------------------------------
Acrylic tray-base material.......... 1.775 oz.......................... 21421, 21452........... Lab.
Adapter, luer lock.................. 1.249 Item........................ 36515.................. Hypodermic, IV.
Adapter, spike (for syringe)........ 4.558 Item........................ 36515.................. Hypodermic, IV.
Adhesive, conductive (silver, 3.000 gm.......................... 88349.................. Lab.
liquid).
Adhesive, cyanoacrylate (2ml 28.988 Item........................ 65286.................. Pharmacy, Rx.
uou).doc.
Airway adapter...................... 12.500 Item........................ 94770.................. Accessory, Procedure.
Albuterol inhal soln (3ml vial)..... 0.436 Item........................ 95070.................. Pharmacy, Rx.
Alcohol ethyl 100%.................. 0.028 ml.......................... 88348.................. Lab.
Applicator, cotton-tipped, sterile, 0.056 Item........................ 127 codes.............. Wound Care, Dressings.
6in.
Applicator, wood, 6.5in............. 0.008 Item........................ 99348-49............... Lab.
Bag system, 1000ml (for angiography 8.925 Item........................ 93501, 93505-10........ Accessory, Procedure.
waste fluids).
Balanced salt soln (BSS) (15ml uou). 1.600 Item........................ 59 codes............... Pharmacy, Rx.
Battery, AA......................... 0.450 Item........................ 95250.................. Office Supply, Grocery.
Blade, surgical, super-sharp........ 4.167 Item........................ 14 codes............... Cutters, Closures, Cautery.
Blade, urethrotome.................. 85.030 Item........................ 52270.................. Cutters, Closures, Cautery.
Blood collection tube holder........ 0.163 Item........................ 78110-11, 78120-22, Hypodermic, IV.
78130, 78191, 78725.
Blood collection tube needle........ 0.142 Item........................ 36514-16, 78110-11, Hypodermic, IV.
78120-22, 78130,
78191, 78725.
Blood pressure recording form, 0.310 Item........................ 93784, 93786, 93788.... Office Supply, Grocery.
average.
Brush, protected airway specimen.... 13.000 Item........................ 31623, 31717........... Accessory, Procedure.
Bur, surgical, sterile (drill)...... 4.792 Item........................ 28289.................. Accessory, Procedure.
Canned air (Dust-Off)............... 1.021 oz.......................... 88348.................. Office Supply, Grocery.
Cannula, anterior chamber, 18-27g... 2.688 Item........................ 65815, 66020, 66030, Accessory, Procedure.
66250.

[[Page 47498]]

Catheter percutaneous fastener 12.745 Item........................ 32201, 44901, 47525, Accessory, Procedure.
(Percu-Stay). 47530, 48511, 49021,
49041, 49061, 49423,
49424, 50021, 58823.
Catheter, (Glide)................... 62.000 Item........................ 36218, 36248........... Accessory, Procedure.
Catheter, (SIM2F1).................. 17.000 Item........................ 36011-15, 36215-17, Accessory, Procedure.
36245-47.
Catheter, angiographic.............. 16.200 Item........................ 93508, 93510, 93526.... Hypodermic, IV.
Catheter, balloon inflation device.. 24.900 Item........................ 35470-76............... Accessory, Procedure.
Catheter, balloon ureteral (Dowd)... 65.000 Item........................ 52330.................. Accessory, Procedure.
Catheter, balloon, low profile PTA.. 431.500 Item........................ 35470, 35471, 35474.... Accessory, Procedure.
Catheter, balloon, PTA.............. 243.500 Item........................ 35472-73, 35475-76..... Accessory, Procedure.
Catheter, curved.................... 17.775 Item........................ 36218.................. Accessory, Produce.
Catheter, hyperthermia, closed-end.. .............. Item........................ 77600-20............... Hypodermic, IV.
Catheter, hyperthermia, open-end.... .............. Item........................ 77600.................. Hypodermic, IV.
Catheter, microcatheter (selective 337.880 Item........................ 36217, 36247........... Accessory, Procedure.
3rd order).
Catheter, Swan Ganz................. 65.000 Item........................ 93501, 93526........... Accessory, Procedure.
Catheter, ureteral, acorn tip....... 9.550 Item........................ 52007, 52010, 52327, Accessory, Procedure.
52330.
Clamp, circumcision................. 7.500 Item........................ 54150.................. Cutters, Closures, Cautery.
Collagen, dermal implant (2.5ml uou) 317.000 Item........................ 52327, 52330........... Pharmacy, Rx.
(Contigen).
Conformer, sterile, acrylic......... 20.000 Item........................ 68340.................. Accessory, Procedure.
Contact lens (hard) care kit........ 7.950 Item........................ 92325-26............... Pharmacy, NonRx.
Contact lens (hard) extra strength 0.158 ml.......................... 92325-26............... Pharmacy, NonRx.
cleaning solution.
Contact lends (RGP) polishing soln 0.077 ml.......................... 92325.................. Pharmacy, NonRx.
(Silo2 Care).
Container, 2000ml, transfer pack.... 7.120 Item........................ 36515.................. Accessory, Procedure.
Container, 600ml, transfer pack..... 3.360 Item........................ 36515.................. Accessory Procedure.
Cotton balls, sterile............... 0.022 Item........................ 115 codes.............. Wound Care, Dressings.
Cup, sterile, 12-16 oz.............. 0.760 Item........................ 32201, 44901, 48511, Lab.
49021, 49041, 49061,
50021, 58823, 93501,
93505, 93508, 93510,
93526.
Cup, sterile, 8 oz.................. 0.542 Item........................ 32201, 44901, 48511, Lab.
49021, 49041, 49061,
50021, 58823.
Cuvette, whole blood oximeter....... 115.000 Item........................ 93501, 93526........... Hypodermic, IV.
Diamond knife cleaning rod.......... 1.000 Item........................ 99348.................. Lab.
Drainage catheter, all purpose...... 88.430 Item........................ 44901, 47525, 47530, Accessory, Procedure.
48511, 49021, 49041,
49061, 49423, 50021,
50398, 58823.
Drainage catheter, chest............ 88.890 Item........................ 32201.................. Accessory, Procedure.
Drainage pouch, nephrostomy-biliary. 13.250 Item........................ 32201, 44901, 47525, Accessory, Procedure.
47530, 48511, 49021,
49041, 49061, 49423,
50021, 50398, 58823.
Drape, sterile, incise, ophthalmic.. 4,900 ............................ 67025, 67028, 67110, Gown, Drape.
67120.
Drape, sterile, split-sheet......... 10,243 Item........................ 212 codes.............. Gown, Drape.
Drape, sterile, table 44 in x 76 in. 5.250 Item........................ 93501-10, 93526........ Gown, Drape.
Electrode, Bugbee................... 115.000 Item........................ 52204, 52214, 52224, Accessory, Procedure.
52265, 52275, 55200,
55250.
Electrode, EEG (single)............. 1.638 Item........................ 95961, 95816........... Accessory, Procedure.
Electrode, EGG (single)............. 2.917 Item........................ 91132, 95925-27, 95930. Accessory, Procedure.
Endoscopic deflecting brush......... 73.500 Item........................ 52007.................. Accessory, Procedure.
Film, x-ray, laser print............ 1.437 Item........................ 146 codes.............. Office Supply, Grocery.
Floxin 0.3% otic soln............... 2.354 ml.......................... 69145, 69620........... Pharmacy, Rx.
Forceps, endomyocardial biopsy...... 250.000 Item........................ 93505.................. Accessory, Procedure.
Forceps, Kelly...................... 2.335 Item........................ 93501-10, 93526........ Accessory, Procedure.
Gas, nitrogen....................... 2.708 cu ft....................... 88348-49............... Lab.
Glass knife boat.................... 0.200 Item........................ 88348.................. Lab.
Grid storage box (holds 50 grids)... 3.750 Item........................ 88348.................. Lab.
Guidewire bowl w-lid, sterile....... 3.000 Item........................ 93501-10, 93526........ Accessory, Procedure.
Guidewire, cerebral (Bentson)....... 14.500 Item........................ 36011-15, 36215-17, Accessory, Procedure.
36245-47.
Guidewire, low profile (SpartaCore). 101.250 Item........................ 35470-71, 35474........ Accessory, Procedure.
Guidewire, steerable (Hi-Torque).... 90.000 Item........................ 35470-76, 37203........ Accessory, Procedure.
Guidewire, steerable (Transcend).... 180.000 Item........................ 36217, 32647........... Accessory, Procedure.
Guidewire, torque................... 41.000 Item........................ 35470-76............... Accessory, Procedure.
Heparin 5,000 units-mi inj.......... 0.509 ml.......................... 36514-15............... Pharmacy, Rx.
Hyaluronic acid viscoelastic inj 61.000 Item........................ 65286, 65815, 66250.... Pharmacy, Rx.
(Amvisc, 0.5ml uou.
Hysteroscope ablation device........ 1,146.000 Item........................ 58563.................. Accessory, Procedure.
Jessner's soln...................... 0.240 ml.......................... 15788-89, 15792-93..... Pharmacy, Rx.
Kenalog 40 inj...................... 1.830 ml.......................... 31830.................. Pharmacy, Rx.

[[Page 47499]]

Kit, AccuStick II Introducer system 82.620 Kit......................... 26 codes............... Kit, Pack, Tray.
with RO Marker.
Kit, apheresis treatment............ 140.000 Kit......................... 36515.................. Kit, Pack, Tray.
Kit, barium enema................... 9.466 Kit......................... 75270, 74283........... Kit, Pack, Tray.
Kit, BCR/ABL DNA probe.............. 42.650 Kit......................... 88365.................. Kit, Pack, Tray.
Kit, slit catheter (for compartment 73.750 Kit......................... 20950.................. Kit, Pack, Tray.
pressure monitor).
Kit, vasotomy....................... .............. Kit......................... 55200, 55250........... Kit, Pack, Tray.
Lacrimal duct stent-tube set........ 74.000 Item........................ 68815.................. Accessory, Procedure.
Lead citrate........................ 0.510 gm.......................... 88348.................. Lab.
Manifold (for angiography).......... 6.682 Item........................ 93501, 93508, 93510, Accessory, procedure.
93526.
Marker, gold, for radiosurgery- 29.667 Item........................ 77761-63............... Accessory, Procedure.
radiotherapy.
Mask, CPR (RespAide)................ 16.950 Item........................ 92950.................. Accessory, Procedure.
Methoxsalen, sterile solution 49.500 ml.......................... 36522.................. Pharmacy, Rx.
(UVADEX), 10ml vial.
Microsponge, cellulose (10 pack uou) 3.620 Item........................ 22 codes............... Wound Care, Dressings.
Mount, carbon spectro-pure (for SEM) 0.500 Item........................ 88349.................. Lab.
Nasal tip, olive.................... 0.340 Item........................ 92512.................. Accessory, Procedure.
Nebulizer medication cup............ 0.140 Item........................ 95070.................. Accessory, Procedure.
Needle, arterial, percutaneous...... 3.150 Item........................ 93501, 93505, 93508, Hypodermic, IV.
93510, 93526.
Needle, bone biopsy................. 65.000 Item........................ 20225.................. Hypodermic, IV.
Needle, flexi, hyperthermia......... 12.000 Item........................ 77600-20............... Hypodermic, IV.
Needle, micropigmentation (tattoo).. 12.000 Item........................ 11920-21............... Hypodermic, IV.
Needle, OSHA compliant (SafetyGlide) 0.454 Item........................ 37 codes............... Hypodermic, IV.
Needle, retrobulbar (Atkinson)...... 1.825 Item........................ 67120, 67141........... Hypodermic, IV.
Omnipaque 350mg (125ml uou)......... 29.530 Item........................ 93508, 93510, 93526.... Pharmacy, Rx.
Omnipaque 350mg (50ml uou).......... 12.498 Item........................ 42550, 70370........... Pharmacy, Rx.
Osmometer sample tip and cleaner.... 0.534 Item........................ 88348.................. Lab.
Osmometer std, 50 mOsm-kg, 2ml amp.. 17.000 ml.......................... 88348.................. Lab.
Osmometer std, 850 mOsm-kg, 2ml amp. 17.000 ml.......................... 88348.................. Lab.
Pack, drapes, ortho, large.......... 40.646 Pack........................ 102 codes.............. Kit, Pack, Tray.
Pack, drapes, ortho, small.......... 1.128 Pack........................ 37 codes............... Kit, Pack, Tray.
Pack, ophthalmology visit (w- 1.997 Pack........................ 65272-73, 65280-85, Kit, Pack, Tray.
dilation). 65290, 65810-015,
65855-60, 66130, 66625-
35, 67031, 68130.
Pack, protective, ortho, large...... 9.182 Pack........................ 99 codes............... Kit, Pack, Tray.
Pack, protective, ortho, small...... 4.441 Pack........................ 38 codes............... Kit, Pack, Tray.
Paper, weighing (glassine).......... 0.021 Item........................ 88348.................. Lab.
Phenol, liquified, USP.............. 0.135 ml.......................... 15788-93............... Pharmacy, Rx.
Photo-Flo soln...................... 0.021 ml.......................... 88348.................. Office Supply, Grocery.
Pipette bulb........................ 0.271 Item........................ 88348-49............... Lab.
Pipette 9inch....................... 0.054 Item........................ 88348-89............... Lab.
Plasma antibody adsorption column 1,150.000 Item........................ 36515.................. Accessory, Procedure.
(Prosorba).
Plasma LDL adsorption column 1,300.000 Item........................ 36516.................. Accessory, Procedure.
(Liposorber).
Plasma leukocyte filter............. 49.719 Item........................ 36515.................. Accessory, Procedure.
Plasma separator (Liposorber)....... 100.000 Item........................ 36516.................. Accessory, Procedure.
Plate, surgical, mini-compression, 4 226.000 Item........................ 21208.................. Accessory, Procedure.
hole.
Plate, surgical, mini-i, 16mm....... 147.000 Item........................ 21210.................. Accessory, Procedure.
Plate, surgical, reconstruction, 719.000 Item........................ 21125-27, 21215........ Accessory, Procedure.
left, 5 x 16 hole.
Plate, surgical, reconstruction, 50.000 Item........................ 21125-27, 21215........ Accessory, Procedure.
template, 5 x 16 hole.
Plate, surgical, rigid comminuted 389,000 item........................ 21461, 21462........... Accessory, Procedure.
fracture.
Plate, surgical, rigid comminuted 29.000 Item........................ 21461, 21462........... Accessory, Procedure.
fracture, template.
Pressure bag........................ .............. Item........................ 93501, 93508-10, 93526. Hypodermic, IV.
Prosthesis, voice button (Blom- 48.000 Item........................ 31611.................. Accessory, Procedure.
Singer).
Scalpel, safety, surgical, with 2.143 Item........................ 54150, 54160, 54162.... Cutters, Closures, Cautery.
blade (10-20).
Screw, surgical, auto-drive, 2.0mm x 37.000 Item........................ 2120................... Accessory, Procedure.
4mm.

[[Page 47500]]

Screw, surgical, Carroll-Girard, 9cm 92.000 Item........................ 21401.................. Accessory, Procedure.
x 3.75in.
Screw, surgical, lag, 2.4mm x 26mm.. 66.000 Item........................ 21461-62............... Accessory, Procedure.
Screw, surgical, locking, 2.4mm x 74.000 Item........................ 21127, 21208, 21215.... Accessory, Procedure.
16mm.
Screw, surgical, self-tapping, 1.5- 27.000 Item........................ 21100, 21452........... Accessory, Procedure.
2.0 mm.
Screw, surgical, standard, 2.4mm x 42.000 Item........................ 21125.................. Accessory, Procedure.
14mm.
Screw, surgical, standard, 2.7mm x 47.000 Item........................ 21125-27, 21208, 21215, Accessory, Procedure.
12mm. 21461-62.
Sea salt............................ 0.004 gm.......................... 15810-11............... Office Supply, Grocery.
Sensor, manometry................... 25.000 Item........................ 91010-12, 91122........ Accessory, Procedure.
Sheath, peel away................... 68.990 Item........................ 47530.................. Accessory, Procedure.
Skin refrigerant-anesthetic spray 5.000 oz.......................... 15780-86, 15788-93..... Pharmacy, Rx.
(Frigiderm).
Sodium acetate...................... 0.064 gm.......................... 88348.................. Lab.
Sodium barbital..................... 0.315 gm.......................... 88348.................. Lab.
Specimen block storage box.......... 0.625 Item........................ 88348.................. Lab.
Splint, finger (metal-foam)......... 1.655 Item........................ 26700-05, 26720-25, Wound Care, Dressings.
26740-42, 26750-55,
26770-75.
Sucrose, reagent.................... 0.037 gm.......................... 88348.................. Lab.
Suture device for vessel closure 225.000 Item........................ 35470-75............... Accessory, Procedure.
(Perclose A-T).
Suture, monocryl, 3-0 to 6-0, p, ps. 9.887 Item........................ 15050, 15200, 15220, Cutters, Closures, Cautery.
15240, 15260.
Suture, nylon, 8-0 to 9-0........... 15.320 Item........................ 65270-72, 65275, 65420- Cutters, Closures, Cautery.
26, 66130, 66250,
68115-30, 68320,
68330, 68340, 68360.
Suture, plain, gut, 2-0 to 6-0...... 4.262 Item........................ 41872.................. Cutters, Closures, Cautery.
Suture, polyester, 0 to 3-0 3.895 Item........................ 40840-45............... Cutters, Closures, Cautery.
(Mersilene).
Suture, vicryl, 7-0................. 21.773 Item........................ 67120.................. Cutters, Closures, Cautery.
Syringe 12ml, coronary control...... 7.000 Item........................ 93508-10, 93526........ Hypodermic, IV.
Syringe filter...................... 2.040 Item........................ 88348.................. Hypodermic, IV.
Tape, foam, elastic, 2in (Microfoam) 0.003 Inch........................ 21120-23, 21315, 21355- Wound Care, Dressings.
56, 31820-25.
Toluidine Blue O (for microscopy)... 0.580 gm.......................... 88348.................. Lab.
Towel clamp, plastic................ 0.556 Item........................ 93501-10, 93526........ Accessory, Procedure.
Tracheostomy collar-neckband........ 3.235 Item........................ 31580-84, 31588, 31610. Wound Care, Dressings.
Tracheostomy dressing............... 3.240 Item........................ 31580-84, 31588, 31610. Wound Care, Dressings.
Tracheostomy tube................... 20.934 Item........................ 31370-82, 31580-84, Accessory, Procedure.
31588, 31610, 31613-
14, 31750, 41140,
41145.
Transducer, pressure monitoring (for 9.520 Item........................ 93501, 93508, 93510, Accessory, Procedure.
angiography). 93526.
Tray, bronchogram................... .............. Tray........................ 31708.................. Kit, Pack, Tray.
Tray, central line dressing change.. 2.430 Tray........................ 36514-16............... Kit, Pack, Tray.
Tray, circumcision.................. 25.173 Tray........................ 54150, 54160-62........ Kit, Pack, Tray.
Tray, surgical skin prep, sterile... 6.765 Tray........................ 134 codes.............. Kit, Pack, Tray.
Trichloroacetic acid 90% (sat soln). 0.855 ml.......................... 46900.................. Pharmacy, Rx.
Tubing set (Liposorber)............. 50.000 Item........................ 36516.................. Hypodermic, IV.
Tubing set, blood warmer............ 7.396 Item........................ 36514-16............... Hypodermic, IV.
Tubing set, plasma exchange......... 173.333 Item........................ 36514.................. Hypodermic, IV.
Tubing set, plasma transfer......... 1.680 Item........................ 36515.................. Hypodermic, IV.
Tubing set, Y-type blood recipient.. 5.750 Item........................ 36515.................. Hypodermic, IV.
Tubing, pressure injection line 3.170 Item........................ 93508, 93510, 93526.... Accessory, Procedure.
(angiography).
Tubing, sterile, connecting (fluid 1.950 Item........................ 93510, 93526........... Accessory, Procedure.
administration).
Tubing, sterile, non-vented (fluid .............. Item........................ 93501, 93508, 93510, Accessory, Procedure.
administration). 93526.
Tubing, suction, non-latex (2ft) 7.557 Item........................ 99 codes............... Accessory, Procedure.
with Frazier tip (1).
Underpad 2ft x 2ft (lab bench)...... 0.377 Item........................ 88348-49............... Lab.
Vial, specimen-sample, 4ml.......... 0.550 Item........................ 88348-49............... Lab.
Wax sheet........................... 0.285 Item........................ 88348.................. Lab.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* CPT codes and descriptions only are copyright.
2004 American Medical Association. All Rights Reserved. Applicable FARS/DFARS apply.

[[Page 47501]]

We have identified certain supply items for which we were unable to
verify the pricing information (see Table 4, Supply Items Needing
Specialty Input for Pricing). Therefore, we are requesting commenters,
particularly specialty organizations, to provide pricing information on
items in this table along with documentation to support the recommended
price. In addition, we are seeking information on the specific contents
of the listed kits, so that we do not duplicate any supply items.

Table 4.--Supply Items Needing Specialty Input for Pricing
--------------------------------------------------------------------------------------------------------------------------------------------------------
Primary specialties *CPT code(s)
Code 2005 Description Unit Unit price associated with item associated with item Status of item
--------------------------------------------------------------------------------------------------------------------------------------------------------
SL008................. Antibodies--detection Slide................. 30.90 Lab, pathology...... 88365............... See Note A.
Blood pressure Item.................. 0.31 Cardiology.......... 93784, 93786, 93788. See Note A.
recording form,
average.
Catheter, Item.................. .............. Radiation oncology.. 77600-20............ See Note A.
hyperthermia, closed-
end.
Catheter, Item.................. .............. Radiation oncology.. 77600............... See Note A.
hyperthermia, open-
end.
Edrophonium.......... ml.................... 4.67 Gastroenterology.... 91011............... See Note A
Hysteroscope, Item.................. 1,146.00 Ob-gyn.............. 58563............... See Note A
ablation device.
Kit, BCR/ABL DNA Kit................... 42.65 Pathology........... 88365............... See Note A.
probe.
SA013................. Kit, detection....... Slide................. 8.50 Pathology, neurology 88355, 88356........ See Note A.
SA024................. Kit, photopheresis Kit................... 809.00 Dermatology, ob-gyn. 36522............... See Note A.
procedure.
Kit, vasotomy........ Kit................... .............. Urology............. 55200, 55250........ See Note A.
Methoxsalen, sterile ml.................... 49.50 Dermatology, 36522............... See Note A.
solution (UVADEX) 10 radiation oncology.
ml vial.
Pressure bag......... Item.................. .............. Cardiology.......... 93501, 93508, 93510, See Note A.
93526.
SL114................. Primary antibodies... Slide................. 3.52 Pathology, neurology 88355, 88356, 88358. See Note A.
Tray, bronchogram.... Tray.................. .............. Pulmonary disease... 31708............... See Note A.
Tubing, sterile, non- Item.................. .............. Cardiology.......... 93501, 93508, 93510, See Note A.
vented (fluid 93526.
administration).
--------------------------------------------------------------------------------------------------------------------------------------------------------
*CPT codes and descriptions only are copyright 2004 American Medical Association. All Rights Reserved. Applicable FARS/DFARS apply.
Note A. Additional information required. Need detailed description (including kit contents), source, and current pricing information.

v. Addition of Supply Item to CPT 88365, Tissue In Situ Hybridization
We received a request from a pathology society to add a DNA probe
to the CPEP database for CPT 88365, tissue in situ hybridization. The
society specified that 1.5 DNA probes are typically used in this
service and the cost of one probe is $42.65. Documentation supporting
this price was also provided. We are proposing to add, on an interim
basis, this supply to the practice expense database with the
understanding that the inclusion of the item will be subject to
forthcoming RUC review.
vi. Ophthalmology Equipment
In the CPEP equipment data for many of the ophthalmology
procedures, there is a duplication of time assigned to the screening
lane and exam lane. In a majority of these identified procedures, the
same timeframe was assigned to both the screening and exam lanes. While
some of the procedures had not been refined by the PEAC, others were
refined early on in the PEAC process before the PEAC agreed to assign
only one equipment lane to each procedure because a patient can be in
only one room at a time. In cases where both the screening and exam
lanes are included, we are proposing to adjust the lane assignment by
defaulting to the exam lane and, thus, we will delete the screening
lane from these procedures. For all of the above services where a lane
change was made, time values were assigned to the exam lane in
accordance with our established standard procedure. We are asking
commenters, in particular, organizations representing ophthalmology, to
review these proposed changes and submit specific comments on the
appropriateness of the exam lane default.
vii. Other Practice Expense Issues
Parathyroid Imaging, CPT 78070
We received comments from the RUC and the specialty society
representing nuclear medicine that the practice expenses for CPT 78070,
parathyroid imaging, which is valued in the nonphysician work pool, are
too low. Because this procedure involves multiple imaging sessions, the
organizations have requested that a different crosswalk of charge-based
RVUs be used to more appropriately value the practice expenses involved
with CPT 78070. We agree and are proposing to crosswalk the charge-
based RVUs from CPT 78306, whole body imaging, to this procedure.

B. Geographic Practice Cost Indices (GPCIs)

[If you choose to comment on issues in this section, please include the
caption ``GPCI'' at the beginning of your comments.]
1. Background
The Social Security Act (the Act) requires that payments vary among
physician fee schedule areas according to the extent that resource
costs vary as measured by the Geographic Practice Cost Indices (GPCIs).
In general, the fee schedule areas that existed under the prior
reasonable charge system were retained under the physician fee schedule
from calendar years 1992 to 1996. We implemented a comprehensive
revision in the physician fee schedule payment areas (localities) in
1997, reducing the number of localities from 210 to 89. A detailed
discussion of physician fee schedule areas can be found in the July 2,
1996 proposed rule (61 FR 34615) and the November 22, 1996 final rule
(61 FR 59494).

[[Page 47502]]

We are required by section 1848(e)(1)(A) of the Act to develop
separate GPCIs to measure resource cost differences among localities
compared to the national average for each of the three fee schedule
components. While requiring that the practice expense and malpractice
GPCIs reflect the full relative cost differences, section
1848(e)(1)(A)(iii) of the Act requires that the physician work GPCIs
reflect only one-quarter of the relative cost differences compared to
the national average.
Section 1848(e)(1)(C) of the Act requires us to review and, if
necessary, to 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. This constitutes the fourth review of the work and
practice expense GPCIs.
The malpractice GPCIs were reviewed and revised as part of the
November 7, 2003 (68 FR 63196) physician fee schedule final rule. At
the time of the publication of the November 2003 final rule, the U.S.
Census data upon which the work and practice expense GPCIs are based
were not yet available.
Section 412 of MMA amends section 1848(e)(1) of the Act and
establishes a floor of 1.0 for the work GPCI for any locality where the
GPCI would otherwise fall below 1.0. This 1.0 work GPCI floor will be
used for purposes of payment for services furnished on or after January
1, 2004 and before January 1, 2007. In addition, section 602 of MMA
further amended section 1848(e)(1) of the Act for purposes of payment
for services furnished in Alaska under the physician fee schedule on or
after January 1, 2004 and before January 1, 2006, and sets the work,
practice expense, and malpractice expense GPCIs at 1.67 if any GPCI
would otherwise be less than 1.67.
Based on these MMA provisions, we revised the addenda published in
the November 7, 2003 final rule (68 FR 63196) that reflected both the
transitional 2004 and 2005 malpractice GPCIs, as well as the work and
practice expense GPCIs that were not updated (Addendum D and Addendum
E, respectively) in an interim final rule with comment period entitled,
``Changes to Medicare Payment for Drugs and Physician Fee Schedule
Payments for Calendar Year 2004,'' published January 7, 2004 (69 FR
1084). Due to the MMA provisions, no locality in these revised addenda
has a work GPCI of less than 1.00. Additionally, the work, practice
expense, and malpractice GPCIs for Alaska are set at 1.67.
We are proposing to revise the work and practice expense GPCIs
beginning in 2005 based on updated U.S. Census data and Department of
Housing and Urban Development fair market rent data.
2. 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 us.
Indices were developed that measured the relative physician resource
cost differences among areas compared to the national average in a
``market basket'' of goods. The market basket consists of the resources
involved with operating a private medical practice. The resource inputs
are--
Physician work or net income (used to construct the
physician work GPCI);
Employee wages, office rents, medical equipment, supplies,
and other miscellaneous expenses used to comprise the practice expense
GPCI; and
Professional liability insurance premiums (used to
construct the malpractice GPCI).
The resource inputs and their respective weights for the resource
costs associated with the work, practice expense, and malpractice
expense associated with providing a physician service, were obtained
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 weights for the 2004 GPCIs, as well as the proposed 2005
through 2007 GPCI revisions, are from the 2003 AMA survey and were used
in the Medicare Economic Index (MEI) revision discussed in the November
2003 physician fee schedule final rule (68 FR 63245). Table 5 below
shows the weights of the resource inputs, as defined by the MEI, those
used for the original GPCIs, as well as the weights for the first,
second, and third GPCI revisions. The MEI weights associated with the
first and second GPCI updates (1995-2000 GPCIs) were not revised. In
addition, the MEI weights for the proposed fourth GPCI revision are
also shown.

Table 5.--Historical View of MEI Weights
----------------------------------------------------------------------------------------------------------------
Percentage of practice cost indices
---------------------------------------------------
Input component 1992-1994 1995-2000 2001-2003 2004-2006
GPCIs GPCIs GPCIs GPCI
----------------------------------------------------------------------------------------------------------------
Physician Work.............................................. 54.2 54.2 54.5 52.5
Practice Expense............................................ 40.2 41.0 42.3 43.7
Employee Wages.............................................. 15.7 16.3 16.8 18.7
Rent........................................................ 11.1 10.3 11.6 12.2
Miscellaneous............................................... 13.4 14.4 13.9 12.8
Malpractice................................................. 5.6 4.8 3.2 3.9
Total................................................... 100.0 100.0 100.0 100.0
----------------------------------------------------------------------------------------------------------------

a. Work Geographic Practice Cost Indices
As in previous GPCI updates, the median hourly earnings component
is based on a 20 percent sample of U.S. Census data from workers in
seven professional occupations. The actual reported earnings of
physicians were not used to establish the GPCIs because Medicare
payments (which are based on the GPCIs) are in part determinants of the
earnings. Including physician wages in the physician work GPCI could,
in effect, make the index dependent upon Medicare payments. Based upon
analysis performed by Health Economics Research, we believe that in the
majority of instances, the earnings of physicians will vary among areas
to the same degree that the earnings of other professionals vary.

[[Page 47503]]

Data from the 2000 decennial U.S. Census by county of seven
professional occupations (architecture and engineering; computer,
mathematical, and natural sciences; social scientist, social workers,
lawyers; education, library, training; registered nurses; pharmacists;
writers, artists, editors) were utilized in the development of the
proposed work GPCIs.

Table 6.--Specific Occupation Categories Used in Development of
Physician Work GPCI
------------------------------------------------------------------------
Census 2000
Categories occupation
code
------------------------------------------------------------------------
Architecture and Engineering.............................. 130-156
Computer, Mathematical, and Natural Sciences.............. 100-124
160-176
Social Scientists, Social Workers, Lawyers................ 180-215
Education, Training, and Library.......................... 220-255
Registered Nurses......................................... 313
Pharmacists............................................... 305
Writers, Artists, and Editors............................. 260-296
------------------------------------------------------------------------

The Census Bureau has very specific criteria that tabulations must
meet in order to be released to the public. To maximize the accuracy
and availability of the data collection, the nonphysician professional
wage data were aggregated into three geographic area categories:
1. By Individual Counties--The tabulations were requested for each
county in a Consolidated Metropolitan Statistical Area (CMSA).
2. By Metropolitan Statistical Area (MSA)--The tabulations were
requested by MSA for all counties that fall within an MSA.
3. By Rest of State--The tabulations were requested by rest of
State for counties that are not in a CMSA or MSA.
The nonphysician professional wage data were subsequently assigned
to each respective county within the MSA or Rest of State aggregations
(or, in the case of CMSAs, the data were already at the county level),
and a median wage by county was calculated for each occupational
category. These median wages were then weighted by the total RVUs
associated with a given county to ultimately arrive at locality-
specific work GPCIs. This geographic aggregation of Census data is the
same methodology that was utilized in previous updates to the GPCIs.
The work GPCIs reflect one-fourth of the relative cost differences,
as required by statute, with the exception of those areas where MMA
requires that the GPCI be set at no lower than 1.00 and that the Alaska
GPCIs be set at 1.67.
b. Practice Expense GPCIs
As in the past, we are proposing that the practice expense GPCI
would be comprised of several factors that represent the major expenses
incurred in operating a physician practice. The factors and the data
sources we propose to use are detailed below. The impact of each
individual factor on the calculation of the practice expense GPCI is
based on the relative weight for that factor consistent with the
calculation of the MEI.
Employee Wage Indices--The employee wage index is based on special
tabulations of 2000 census data, which are generated from the Long Form
Questionnaire. These special tabulations provided by the Census Bureau
are designed to capture the median wage by county of the professional
labor force. The Employee Wage Index uses the median wages of four
labor categories that are most commonly present in a physician's
private practice (administrative support, registered nurses, licensed
practical nurses, and health technicians). Median wages for these
occupations were provided by the U.S. Census Bureau using the same set
of geographic aggregation rules discussed previously in the physician
work GPCI section.

Table 7.--Specific Occupations Used in Creating Employee Wage Index
Update
------------------------------------------------------------------------
Categories Census 2000 occupation code
------------------------------------------------------------------------
Administrative Support................. 500-593
Registered Nurses...................... 313
Licensed Practical Nurses.............. 350
Health Technicians..................... 330, 332, 341, 351-354, 365
------------------------------------------------------------------------

Office Rent Indices-- Since no national data are readily available
for physician office rents, some proxy must be used for this portion of
the practice expense index. To construct the practice expense GPCIs, we
need data that are widely and consistently available across all fee
schedule areas. Although we searched for alternative commercial rental
data that were both widely and consistently available across all fee
schedule areas, we were unable to identify any reliable sources of
commercial rental data.
As with the current practice expense GPCIs, the Department of
Housing and Urban Development (HUD) Fair Market Rental (FMR) data for
the residential rents were again used as the proxy for physician office
rents. The proposed 2005 through 2007 practice expense GPCIs reflect
the final fiscal year 2004 HUD FMR data. See Addendum E for a more
detailed illustration of the actual office rent indices.
We believe that the FMR data remain the best available source for
constructing the office rent index. The FMR data are available for all
areas, are updated annually, and retain consistency from area-to-area
and from year-to-year. Additionally, physicians frequently locate their
offices in areas that are residential, rather than commercial, in
nature. Residential rates may, in fact, be a better measure of the
differences among areas in the physician office market than a general
commercial rental index. In developing FMRs for metropolitan areas, HUD
assumes that all counties within an MSA have the same rent. However, we
believe that the rents in the New York City MSA vary too widely and
propose that the FMR for this metropolitan area should be adjusted to
account for this variation. For the New York City MSA, we used median
gross rent from the 2000 Census to adjust the individual rents within
counties in this MSA.
A reduction in an area's rent index does not necessarily mean that
rents have gone down in that area since the last GPCI update. Since the
GPCIs measure area costs compared to the national average, a decrease
in an area's rent index means that that area's rental costs are lower
relative to the national average rental costs. Addendum E illustrates
the changes in the rental index based upon the new FMR data.
Medical Equipment, Supplies, and other Miscellaneous Expenses--The
GPCIs assume that items such as medical equipment and supplies have a
national market and that input prices do not vary among geographic
areas. We were again unable to find any data sources that demonstrated
price differences by geographic areas. As mentioned in previous
updates, some price differences might exist, but these differences are
more likely to be based on volume discounts rather than on geographic
areas. The medical equipment, supplies, and miscellaneous expense
portion of the practice expense geographic index will continue to be
1.000 for all areas in the proposed GPCIs, except for Alaska which will
have an overall practice expense GPCI set at 1.67 for 2004 and 2005.
c. Malpractice Expense GPCIs
The malpractice GPCIs were reviewed and revised as part of the
November 7, 2003 (68 FR 63196) physician fee schedule final rule.
Please refer to that

[[Page 47504]]

final rule for a detailed discussion of the update to the malpractice
GPCIs.
4. Calculation and Effect of the Proposed 2005 Through 2007 Work and
Practice Expense GPCIs
All three of the indices for a specific fee schedule locality are
based on the indices for the individual counties within the respective
fee schedule localities. As has been done in the past, fee schedule
RVUs would again be used to weight the county indices (to reflect
volumes of services within counties) when mapping to fee schedule areas
and in constructing the national average indices. However, we propose
to use more recent data, 2002 versus 1998 RVUs, in the county,
locality, and national mapping in the proposed GPCIs. The payment
effect associated with the use of these revised RVUs would generally be
negligible, in most cases resulting in changes at the third decimal
point, if at all.
Fee schedule payments are the product of the RVUs, the GPCIs, and
the conversion factor. Updating the GPCIs changes the relative position
of fee schedule areas compared to the national average. Since the
changes represented by the proposed GPCIs could result in total
payments either greater than or less than what would have been paid if
the GPCIs were not updated, it would be necessary to apply scaling
factors to the proposed GPCIs to ensure budget neutrality (prior to
applying the provisions of MMA that change the work GPCIs to a minimum
of 1.0 and increase the Alaska GPCIs to 1.67 because these provisions
are exempted from budget neutrality). We determined that the proposed
work and practice expense GPCIs would have resulted in slightly higher
total national payments. Since the law requires that each individual
component of the fee schedule--work, practice expense, and malpractice
expense--is separately adjusted by its respective GPCI, we propose to
scale each of the GPCIs separately. To ensure budget neutrality prior
to applying the MMA provisions, it would be necessary to--
Decrease the proposed work GPCI by 0.9965;
Decrease the proposed practice expense GPCI by 0.9930; and
Increase the malpractice GPCIs that were published in the
November 7, 2003 final rule by 1.0021.
As all geographic payment areas would receive the same percentage
adjustments, the adjustments do not change the new relative positions
among areas indicated by the proposed GPCIs. After the appropriate
scaling factors are applied, the MMA provision setting a 1.0 floor
would be applied to all work GPCIs falling below 1.0. Additionally, the
GPCIs for Alaska would all be set to 1.67 in accordance with MMA.
The locality specific effect of these proposed revisions to the
work and practice expense GPCIs, as well as the revisions to the
malpractice GPCIs published in the November 7, 2003 final rule, and the
MMA provisions enacted December 8, 2003, are shown in Addendum F
through Addendum H. Addendum F reflects the current GPCIs that were
effective on January 1, 2004. Addendum F can be utilized as a baseline
for purposes of comparison to the proposed GPCIs. Addendum H
illustrates the proposed fully implemented 2006 GPCIs. Addendum G
illustrates the proposed transitional 2005 GPCIs, which are one-half of
the effect of the proposed fully implemented GPCI revisions as required
by section 1848(e)(1)(C) of the Act.
Because the three GPCIs have different weights, the overall effect
of the proposed changes cannot be achieved by summing the individual
effects of the revisions on the work, practice expense, and malpractice
expense GPCIs. The overall effect of all three revised GPCI components
on an area can be estimated by a comparison of the area's geographic
adjustment factors (GAFs). The GAF for a specific payment area is the
weighted composite of the three separate components. The GAF
illustrates an estimate of the general effect on total payments across
a specific fee schedule locality. The effects on individual physicians
would vary depending on each physician's mix and volume of services.
To illustrate a comparison of the overall effect of the current and
proposed GPCIs, Addendum J contains a comparison of the current 2004
GAFs to the proposed fully-implemented 2006 GAFs. Addendum I contains a
comparison of the proposed transitional GAFs (2005) to the current 2004
GAFs. Both Addenda I and J are sorted in descending order of change. As
Addendum J shows, no fee schedule area would experience a total
decrease in its respective GAF by more than 3.5 percent, or increase by
more than 7 percent, if the proposed GPCI revisions are fully
implemented in 2006. The majority of payment areas would change by
considerably less than these amounts. Nearly 75 percent of payment
areas would change by less than 2 percent with the majority of these
payment areas changing by less than 1 percent. Consequently, as
illustrated by Addendum I, no fee schedule area would experience a
total decrease in its respective GAF of more than 1.6 percent, or an
increase of more than 3.5 percent, in the transition year (2005).
The GPCIs measure relative cost differences among payment areas
compared to the national average. The national average cost is
represented by a value of about 1.000. A proposed GPCI revision showing
a decrease from the current value does not necessarily mean that
absolute costs in a payment area have decreased, only that the average
costs of a payment area have decreased as compared to the national
average costs.
5. Payment Localities
In the August 15, 2003 proposed rule, we requested comments on the
composition of the current 89 Medicare physician payment localities to
which the GPCIs are applied. In the November 7, 2003 final rule, we
indicated that we received comments from various parties requesting
that specific counties be removed from their current locality. We
further indicated that we are continuing to examine alternatives for
reconfiguring the current locality structure.
While we have considered alternatives, we have not yet been able to
come up with a policy and criteria that would satisfactorily apply to
all situations. Any policy that we would propose would have to apply to
all States and payment localities. For example, if we were to establish
a policy that if adjacent county geographic indices exceeded a
threshold amount, the lower county could be moved to the higher county
or a separate locality could be created, that approach would cause
redistributions within a State.
Locality changes are budget-neutral with respect to the aggregate
amount of Medicare money in a State. That is, reconfigurations of
localities within a State do not result in any more Medicare money for
the State in the aggregate, but only redistributions of money within a
State. Since there will be both winners and losers in any locality
reconfiguration, the State medical associations should be the impetus
behind these changes. Since 1996, we have moved to Statewide areas in
several States after receiving resolutions from State medical societies
including support from physicians in losing areas, and after going
through Notice and Comment rulemaking. The support of State medical
associations has been the basis for previous changes to Statewide
areas, and continues to be equally important in our consideration of
other future locality changes.

[[Page 47505]]

C. Malpractice Relative Value Units (RVUs)

[If you choose to comment on issues in this section, please include the
caption ``Malpractice RVUs'' at the beginning of your comments.]
1. History of Relative Value Unit System
Section 1848(c)(2)(C) of the Act requires that each service paid
under the physician fee schedule be comprised of three components:
work, practice expense, and malpractice.
From 1992 to 1999, malpractice RVUs were charge-based, using
weighted specialty-specific malpractice expense percentages and 1991
average allowed charges. Malpractice RVUs for new codes after 1991 were
extrapolated from similar existing codes or as a percentage of the
corresponding work RVU. Section 4505(f) of the BBA required us to
implement resource-based malpractice RVUs for services furnished
beginning in 2000. With the implementation of resource-based
malpractice RVUs in 2000 and the full implementation of resource-based
practice expense RVUs in 2002, all physician fee schedule RVUs were
resource-based, eliminating the last vestiges of charged-based payment.
2. Proposed Methodology for the Revision of Resource-based Malpractice
RVUs
The methodology used in calculating the proposed resource-based
malpractice RVUs is the same methodology that was used in the initial
development of resource-based RVUs, the only difference being the use
of more current data. The proposed resource-based malpractice expense
RVUs are based upon:
Actual 2001 and 2002 malpractice premium data;
Projected 2003 premium data; and
2002 Medicare payment data on allowed services and
charges.
As was done in the initial development of resource-based
malpractice expense RVUs in the November 2, 1999 final rule, we are
proposing to revise resource-based malpractice expense RVUs using
specialty-specific malpractice premium data because they represent the
actual malpractice expense to the physician. In addition, malpractice
premium data are widely available. We propose to use actual 2001 and
2002 malpractice premium data and projected 2003 malpractice premium
data for three reasons:
These are the most current data available.
These data capture the highly publicized and most recent
trends in the specialty-specific costs of professional liability
insurance.
These are the same malpractice premium data that were
utilized in the development of revised malpractice GPCIs in the
November 7, 2003 final rule.
We were unable to obtain a nationally representative sample of 2003
malpractice premium data for two reasons: (1) The premium data that we
collected from the private insurance companies had to ``match'' the
market share data that were provided by the respective State
Departments of Insurance. Because none of the State Departments of
Insurance had 2003 market share information at the time of this data
collection, 2003 premium data were not usable; and (2) the majority of
private insurers were not amicable to releasing premium data to us. In
the majority of instances, the private insurance companies would
release their premium data only to the State Departments of Insurance.
Discussions with the industry lead us to conclude that the primary
determinants of malpractice liability costs remain physician specialty,
level of surgical involvement, and the physician's malpractice history.
Malpractice premium data were collected for the top 20 Medicare
physician specialties measured by total payments. Premiums were for a
$1 million/$3 million mature claims-made policy (a policy covering
claims made, rather than services provided during the policy term). We
attempted to collect premium data from all 50 States, Washington, DC,
and Puerto Rico. Data were collected from commercial and physician-
owned insurers and from joint underwriting associations (JUAs). A JUA
is a State government-administered risk pooling insurance arrangement
in areas where commercial insurers have left the market. Adjustments
were made to reflect mandatory patient compensation funds (PCFs) (funds
to pay for any claim beyond the statutory amount, thereby limiting an
individual physician's liability in cases of a large suit) surcharges
in States where PCF participation is mandatory. The premium data
collected represent at least 50 percent of physician malpractice
premiums paid in each State.
For 2001, we were able to collect premium data from 48 States (for
purposes of this discussion, State counts include Washington, DC and
Puerto Rico). We were unable to obtain premium data from Kentucky, New
Hampshire, New Mexico, and Washington DC. To calculate a proxy for the
malpractice premium data for these four areas in 2001, we began with
the most current malpractice premium data collected for these areas,
1996 through 1998 (the last premium data collection that was
undertaken). An average premium price was calculated (using 1996
through 1998 data) for all States except Kentucky, New Hampshire, New
Mexico, and Washington, DC. Similarly, an average premium price was
calculated for the 1999 through 2001 period for all States except
Kentucky, New Hampshire, New Mexico, and Washington, DC. The percentage
change in these premium prices was calculated as the percent difference
between the 1999 to 2001 calculated average premium price and the 1996
to 1998 calculated average premium price. This percentage change was
then applied to the weighted average 1996 to 1998 malpractice premium
price for these four areas to arrive at a comparable 1999 to 2001
average premium price.
For 2002, we were able to obtain malpractice premium data from 33
States. Many State Departments of Insurance had not yet obtained
premium data from the primary insurers within their State at the time
of this data collection. For those States for which we were unable to
obtain malpractice premium data, we calculated a national average rate
of growth for 2002 and applied this national rate of growth to the
weighted average premium for 2001 to obtain an average premium for 2002
for each county for which we were unable to obtain malpractice premium
data for 2002.
We projected premium values for 2003 based on the average of
historical year-to-year changes for each locality (when locality level
data were available) or by State (when only Statewide premium data
projections were available). First, we calculated the percentage
changes in the premiums from the 1999 through 2000, 2000 through 2001,
and 2001 through 2002 periods for each payment locality. Next, we
calculated the geometric mean of these three percentages and applied
the mean to the 2002 premium to obtain the forecasted 2003 malpractice
premium. We used the geometric mean to calculate the forecasted 2003
premium data because the geometric mean is commonly used to derive the
mean of a series of values that represent rates of change. Because the
geometric mean is based on the logarithmic scale, it is less impacted
by outlying data.
Malpractice insurers generally use five-digit codes developed by
the Insurance Services Office (ISO), an advisory body serving property
and casualty insurers, to classify physician

[[Page 47506]]

specialties into different risk classes for premium rating purposes.
ISO codes classify physicians not only by specialty, but in many cases
also by whether or not the specialty performs surgical procedures. A
given specialty could thus have two ISO codes, one for use in rating a
member of that specialty who performs surgical procedures and another
for rating a member who does not perform surgery. Medicare uses its own
system of specialty classification for payment and data purposes. It
was therefore necessary to map Medicare specialties to ISO codes and
insurer risk classes. Different insurers, while using ISO codes, have
their own risk class categories. To ensure consistency, we used the
risk classes of St. Paul Companies, one of the oldest and largest
malpractice insurers. Table 8 crosswalks Medicare specialties to ISO
codes and to the St. Paul risk classes used.

Table 8.--Crosswalk of Medicare Specialties to IOS Codes and to the St. Paul Risk Classes Used
----------------------------------------------------------------------------------------------------------------
ISO code Risk class
Medicare code Medicare ---------------------------------------------------- St. Paul's
description Surgery Other Surgery Other description
----------------------------------------------------------------------------------------------------------------
1.................... General practice.. 80117 80420 4 1 Family/Gen.
Practitioners--N
o Obstetrical.
2.................... General surgery... 80143 80143 5 5 Surgery, General.
3.................... Allergy/ 80254 80254 1A 1A Allergy.
Immunology.
4.................... Otolaryngology.... 80159 80265 3 1 Otarhinolaryngolo
gy.
5.................... Anesthesiology.... 80151 80151 5A 5A Anesthesiology.
6.................... Cardiology........ 80281 80255 2 1 Cardiovascular
Disease.
7.................... Dermatology....... 80472 80256 5 1A Dermatology.
8.................... Family practice... 80117 80420 4 1 Family/Gen.
Practitioners--N
o Obstetrical.
10................... Gastroenterology.. 80104 80241 3 1 Gastroenterology.
11................... Internal medicine. 80284 80257 2 1 Internal
medicine.
13................... Neurology......... 80288 80261 2 2 Neurology.
14................... Neurosurgery...... 80152 80152 8 8 Surgery,
Neurology.
16................... Obstetrics/ 80167 80244 4 1 Gynecology.
Gynecology.
18................... Ophthalmology..... 80114 80263 2 1 Ophthalmology.
20................... Orthopedic surgery 80501 80501 5 5 Surgery,
Orthopedic--excl
uding Spinal
Surgery.
20................... Orthopedic surgery 80154 80154 6 6 Surgery,
Orthopedic--incl
uding Spinal
Surgery.
22................... Pathology......... 80292 80266 2 1A Pathology.
24................... Plastic and 80156 80156 5 5 Surgery, Plastic.
reconstructive
surgery.
25................... Physical medicine 80235 80235 1 1 Physical medicine
and rehab. and rehab.
26................... Psychiatry*....... 80492, 80249 2 1A Psychiatry.
80431
28................... Colorectal surgery 80115 80115 3 3 Surgery, Colon
and Rectal.
29................... Pulmonary Disease. 80269 80269 1 1 Pulmonary
Disease.
30................... Diagnostic 80280 80253 2 2 Radiology.
radiology **.
33................... Thoracic surgery.. 80144 80144 6 6 Surgery,
Thoracic.
34................... Urology........... 80145 80145 2 2 Surgery,
Urological.
36................... Nuclear medicine.. 80262 80262 1 1 Nuclear medicine.
37................... Pediatric medicine 80293 80267 2 1 Pediatrics.
38................... Geriatric 80276 80243 2 1 Geriatrics.
medicine***.
39................... Nephrology***..... 80287 80260 2 1 Nephrology.
40................... Hand surgery...... 80169 80169 5 5 Surgery, Hand.
44................... Infectious disease 80279 80246 2 1 Infectious
disease.
46................... Endocrinology***.. 80272 80238 2 1 Endocrinology.
65................... Physical therapist 80235 80235 1 1 Physical medicine
(independent). and rehab.
66................... Rheumatology...... 80252 80252 1 1 Rheumatology.
67................... Occupational 80235 80235 1 1 Occupational
therapist Medicine.
(independent).
77................... Vascular surgery.. 80146 80146 6 6 Surgery,
Vascular.
78................... Cardiac surgery... 80141 80141 6 6 Surgery, Cardiac.
82................... Hematology........ 80278 80245 2 1 Hematology.
83................... Hematology/ 80473 80473 1 1 Oncology.
oncology.
84................... Preventive 80231 80231 1 1 General
medicine. Preventive
Medicine.
92................... Radiation 80425 80425 2 2 Radiation
Oncology****. Therapy.
93................... Emergency medicine 80157 80102 5 4 Emergency
Medicine.
98................... Gynecologist/ 80167 80244 4 1 Gynecology.
oncologist.
----------------------------------------------------------------------------------------------------------------
Note: For specialties with multiple risk classifications depending on the level of surgical involvement, the
highest level of surgery for each specialty was selected for the ``surgery'' ISO and risk class; and the
lowest level of surgery was selected for the ``nonsurgery'' ISO and risk class.
Note: If a specialty has only one risk classification, the same classification was used for both surgery and
nonsurgery.
* The ISO codes for surgery for Psychiatry represents Psychiatry--shock therapy.
** St. Paul's is the only one of the five companies that has a ``major invasive'' procedures ISO Code for
Radiology; therefore, the ``minor invasive procedures'' ISO Code is being used as the highest level of
surgery.
*** St. Paul's is the only one of the five companies that has a ``major surgery'' ISO Code for Geriatrics,
Nephrology, and Endocrinology; therefore, the minor surgery'' ISO Code is being used as the highest level of
surgery.
**** Medical Protective's Description was used, as St. Paul's does not provide specific medical malpractice
insurance for Radiation Therapy.

[[Page 47507]]

Some physician specialties, nonphysician practitioners, and other
entities (for example, independent diagnostic testing facilities) paid
under the physician fee schedule could not be assigned an ISO code. We
crosswalked these specialties to similar physician specialties assigned
an ISO code and a risk class. The unassigned specialties and the
specialty to which they were assigned are shown in Table 9.

Table 9.--Crosswalk of Specialties to Similar Physician Specialties Assigned an ISO Code and a Risk Class
----------------------------------------------------------------------------------------------------------------
Unassigned Medicare
Medicare code specialty Crosswalk specialty
----------------------------------------------------------------------------------------------------------------
12.......................................... Osteopathic Family Practice.
Manipulative Therapy.
32.......................................... Anesthesiologist Anesthesiology.
Assistant.
35.......................................... Chiropractic......... Physical medicine and rehab.
41.......................................... Optometry............ Ophthalmology.
43.......................................... Certified Registered All Physicians.
Nurse Assistant.
47.......................................... Physiological All Physicians.
Laboratory
(independent).
48.......................................... Podiatry............. All Physicians.
50.......................................... Nurse Practitioner... All Physicians.
62.......................................... Psychologist......... Psychiatry.
68.......................................... Clinical Psychologist Psychiatry.
69.......................................... Clinical Laboratory.. All Physicians.
70.......................................... Multi-Specialty All Physicians.
Clinic or Group
Practice.
74.......................................... Radiation Therapy Radiation Oncology.
Center.
76.......................................... Peripheral Vascular Vascular Surgery.
Disease.
79.......................................... Addiction Medicine... Psychiatry.
80.......................................... Licensed Clinical Psychiatry.
Social Worker.
81.......................................... Critical Care All Physicians.
(Intensivists).
85.......................................... Maxillofacial Surgery Plastic Surgery.
86.......................................... Neuropsychiatry...... Psychiatry.
89.......................................... Certified Clinical All Physicians.
Nurse Specialist.
90.......................................... Medical Oncology..... Internal Medicine.
91.......................................... Surgical Oncology.... General Surgery.
94.......................................... Interventional Radiology.
Radiology.
96.......................................... Optician............. Ophthalmology.
97.......................................... Physician Assistant.. All Physicians.
----------------------------------------------------------------------------------------------------------------

In the development of the proposed resource-based malpractice RVU
methodology, we considered two malpractice premium-based alternatives
for resource-based malpractice RVUs, the dominant specialty approach
and the specialty-weighted approach.

Dominant Specialty Approach

The dominant specialty approach bases the malpractice RVUs upon the
risk factor of only the dominant specialty performing a given service
as long as the dominant specialty accounted for at least 51 percent of
the total utilization for a given service. When 51 percent of the total
utilization does not comprise the dominant specialty, this approach
uses a modified specialty-weighted approach. In this modified
specialty-weighted approach, two or more specialties are collectively
defined as the dominant specialty. Starting with the specialty with the
largest percentage of allowed services, the modified specialty-weighted
approach successively adds the next highest specialty in terms of
percentage of allowed services until a 50 percent threshold is
achieved. The next step is to sum the risk factors of those specialties
(weighted by utilization) in order to achieve at least 50 percent of
the total utilization of a given service and then use the factors in
the calculation of the final malpractice RVU.
The dominant specialty approach produces modest increases for some
specialties and modest decreases for other specialties. The largest
increase for any given specialty, over the specialty-weighted approach,
is less than 1.5 percent of total RVUs, while the largest decrease for
any given specialty is less than 0.5 percent of total RVUs.

Specialty-Weighted Approach

The approach that we adopted in the November 1999 final rule and
are proposing to use in this proposed rule, bases the final malpractice
RVUs upon a weighted average of the risk factors of all specialties
performing a given service. The specialty-weighted approach ensures
that all specialties performing a given service are accounted for in
the calculation of the final malpractice RVU. Our proposed methodology
is as follows:
(1) Compute a national average premium for each specialty.
Insurance rating area malpractice premiums for each specialty were
mapped to the county level. The specialty premium for each county is
then multiplied by the total county RVUs (as defined by Medicare claims
data), which had been divided by the malpractice GPCI applicable to
each county to standardize the relative values for geographic
variations. If the malpractice RVUs were not normalized for geographic
variation, the locality cost differences (as reflected by the GPCIs)
would be counted twice. The product of the malpractice premiums and
standardized RVUs is then summed across specialties for each county.
This calculation is then divided by the total RVUs for all counties,
for each specialty, to yield a national average premium for each
specialty.
Table 10 shows the national average premiums for the years 1999
through 2003 for the 20 specialties for which we collected premium
data. As stated previously, we used an average of the 3 most current
years, 2001 to projected 2003 malpractice premiums, in our calculation
of the proposed malpractice RVUs.

[[Page 47508]]

Table 10.--National Average Premiums for the Years 1999 Through 2003 for the 20 Specialties for Which We Collected Premium Data
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual
2001 2002 2003 1996-1998 2001-2003 trend \2\ Specialty Normalized Risk
ISO Specialty average average average average average \1\ MGPCI \3\ 2001-2003 factor
(percent) premium \4\ \5\
--------------------------------------------------------------------------------------------------------------------------------------------------------
80269................ Pulmonary disease..... 12,574 13,456 14,541 9,508 13,524 7.30 1.027 13,168 2.14
80280................ Diagnostic radiology.. 15,807 16,783 17,997 12,372 16,862 6.39 0.997 16,913 2.75
80284................ Internal medicine..... 14,395 15,714 16,985 11,836 15,698 5.81 1.028 15,270 2.48
80274................ Gastroenterology...... 14,347 15,398 16,643 11,745 15,463 5.65 1.017 15,204 2.47
80143................ General surgery....... 33,163 36,004 39,059 27,825 36,075 5.33 0.957 37,696 6.13
80423................ General practice...... 13,325 14,479 15,731 11,234 14,512 5.25 0.943 15,389 2.50
80288................ Neurology............. 16,206 17,330 18,629 13,726 17,388 4.84 1.032 16,849 2.74
80114................ Ophthalmology......... 13,064 14,103 15,317 11,209 14,161 4.79 0.997 14,204 2.31
80152................ Neurosurgery.......... 64,724 70,125 76,060 57,701 70,303 4.03 0.952 73,848 12.00
80281................ Cardiology............ 14,798 15,836 17,085 13,204 15,906 3.79 1.021 15,579 2.53
80145................ Urology............... 18,701 20,253 21,931 16,958 20,295 3.66 0.999 20,315 3.30
80159................ Otolaryngology........ 21,720 23,127 24,794 19,990 23,214 3.04 0.997 23,284 3.78
80154................ Orthopedic w/spinal... 40,384 43,758 47,321 38,584 43,821 2.58 0.955 45,886 7.46
80144................ Thoracic surgery...... 39,538 43,200 47,249 38,812 43,329 2.23 1.020 42,479 6.91
80282................ Dermatology........... 11,046 11,549 12,375 10,650 11,657 1.82 1.020 11,428 1.86
80260................ Nephrology \6\........ 8,408 9,290 10,142 n/a 9,280 n/a 0.999 9,289 1.51
80146................ Vascular surgery...... 39,391 42,660 46,211 n/a 42,754 n/a 1.014 42,164 6.85
80141................ Cardiac surgery....... 37,802 40,498 43,722 n/a 40,674 n/a 0.921 44,163 7.18
80425................ Radiation oncology.... 13,800 14,755 15,976 n/a 14,844 n/a 0.995 14,918 2.43
80102................ Emergency medicine.... 20,671 22,672 24,733 n/a 22,692 n/a 0.974 23,298 3.79
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ A simple average of figures for 2001, 2002, and 2003.
\2\ Percent annualized average growth rate between 1996-1998 and 2001-2003.
\3\ An average of locality malpractice GPCIs using specialty-specific malpractice RVUs as weights.
\4\ 2001-2003 premium divided by specialty MGPCI.
\5\ (Normalized 2001-2003 Premium, .9289) x 1.51.
\6\ Nephrology is set to 1.51 to be consistent with the risk factor taken from the rating manuals. n/a signifies that the premium data were not
available.

(2) Calculate a risk factor for each specialty. Differences among
specialties in malpractice premiums are a direct reflection of the
malpractice risk associated with the services performed by a given
specialty. The relative differences in national average premiums
between various specialties can be expressed as a specialty risk
factor. These risk factors are an index calculated by dividing the
national average premium for each specialty by the national average
premium for the specialty with the lowest average premium, nephrology.
Table 11 shows the risk factors, surgical and nonsurgical, by
specialty.

Table 11.--Risk Factors, Surgical and Nonsurgical, by Specialty
----------------------------------------------------------------------------------------------------------------
Nonsurgical Surgical risk
Medicare code Medicare description risk factor factor
----------------------------------------------------------------------------------------------------------------
01............................................ General practice................ 1.79 4.26
02............................................ General surgery................. 6.13 6.13
03............................................ Allergy/Immunology.............. 1.00 1.00
04............................................ Otolaryngology.................. 1.45 3.78
05............................................ Anesthesiology.................. 2.84 2.84
06............................................ Cardiology...................... 1.45 2.53
07............................................ Dermatology..................... 1.00 3.90
08............................................ Family practice................. 1.79 4.26
10............................................ Gastroenterology................ 2.05 3.49
11............................................ Internal medicine............... 2.05 2.48
12............................................ Osteopathic Manipulative Therapy 1.79 4.26
13............................................ Neurology....................... 2.52 2.74
14............................................ Neurosurgery.................... 12.00 12.00
16............................................ Obstetrics/Gynecology........... 2.15 5.63
18............................................ Ophthalmology................... 1.24 2.31
20............................................ Orthopedic surgery w/o Spinal... 8.06 8.06
20............................................ Orthopedic surgery with Spinal.. 7.46 7.46
22............................................ Pathology....................... 1.72 2.09
24............................................ Plastic Surgery................. 6.92 6.92
25............................................ Physical Med & Rehab............ 1.26 1.26
26............................................ Psychiatry...................... 1.11 3.08
28............................................ Colorectal surgery.............. 4.08 4.08
29............................................ Pulmonary disease............... 2.14 2.14
30............................................ Diagnostic radiology............ 2.07 2.75
32............................................ Anesthesiologist Assistant...... 2.84 2.84
33............................................ Thoracic surgery................ 6.91 6.91
34............................................ Urology......................... 3.30 3.30
35............................................ Chiropractic.................... 1.26 1.26
36............................................ Nuclear medicine................ 1.66 1.66
37............................................ Pediatric medicine.............. 1.76 2.42
38............................................ Geriatric medicine.............. 1.35 2.17
39............................................ Nephrology...................... 1.51 1.96

[[Page 47509]]

40............................................ Hand surgery.................... 4.71 4.71
41............................................ Optometry....................... 1.24 2.31
43............................................ Certified Registered Nurse 3.04 3.71
Assistant.
44............................................ Infectious disease.............. 1.55 2.09
46............................................ Endocrinology................... 2.03 2.09
47............................................ Physiological Laboratory 3.04 3.71
(independent).
48............................................ Podiatry........................ 3.04 3.71
50............................................ Nurse Practitioner.............. 3.04 3.71
62............................................ Psychologist.................... 1.11 3.08
65............................................ Physical therapist (independent) 1.26 1.26
66............................................ Rheumatology.................... 2.11 2.11
67............................................ Occupational therapist.......... 1.11 1.11
68............................................ Clinical Psychologist........... 1.11 3.08
69............................................ Clinical Laboratory............. 3.04 3.71
70............................................ Multi-Specialty Clinic or Group 3.04 3.71
Practice.
74............................................ Radiation Therapy Center........ 2.43 2.43
76............................................ Peripheral Vascular Disease..... 6.85 6.85
77............................................ Vascular surgery................ 6.85 6.85
78............................................ Cardiac surgery................. 7.18 7.18
79............................................ Addiction Medicine.............. 1.11 3.08
80............................................ Licensed Clinical Social Worker. 1.11 3.08
81............................................ Critical Care (Intensivists).... 3.04 3.71
82............................................ Hematology...................... 1.77 2.26
83............................................ Hematology/oncology............. 2.05 2.11
84............................................ Preventive medicine............. 1.26 1.26
85............................................ Maxillofacial Surgery........... 6.92 6.92
86............................................ Neuropsychiatry................. 1.11 3.08
89............................................ Certified Clinical Nurse 3.04 3.71
Specialist.
90............................................ Medical Oncology................ 2.05 2.48
91............................................ Surgical Oncology............... 6.13 6.13
92............................................ *Radiation oncology/therapy..... 2.43 2.43
93............................................ Emergency medicine.............. 3.79 4.55
94............................................ Interventional Radiology........ 2.07 2.75
96............................................ Optician........................ 1.24 2.31
97............................................ Physician Assistant............. 3.04 3.71
98............................................ Gynecologist/oncologist......... 2.15 5.63
----------------------------------------------------------------------------------------------------------------
Note: If a specialty has only one risk classification, the same classification was used for both surgery and
nonsurgery.
Note: For specialties with multiple risk classifications depending on the level of surgical involvement, the
highest level of surgery was selected for surgery risk factor and the lowest level of surgery was selected for
nonsurgery risk factor.

(3) Calculate malpractice RVUs for each code. Resource-based
malpractice RVUs were calculated for each procedure. The first step was
to identify the percentage of services performed by each specialty for
each respective procedure code. This percentage was then multiplied by
each respective specialty's risk factor as calculated in Step 2. The
products for all specialties for the procedure were then summed,
yielding a specialty-weighted malpractice RVU reflecting the weighted
malpractice costs across all specialties for that procedure. This
number was then multiplied by the procedure's work RVUs to account for
differences in risk-of-service. Since we were unable to find an
acceptable source of data to be used in determining risk-of-service,
work RVUs were used. We would welcome any suggestions for alternative
data sources to be used in determining risk-of-service.
As mentioned above, certain specialties may have more than one ISO
rating class and risk factor. The surgical risk factor for a specialty
was used for surgical services and the nonsurgical risk factor for
evaluation and management services. Also, for obstetrics/gynecology,
the lower gynecology risk factor was used for all codes except those
obviously surgical services, in which case the higher, surgical risk
factor was used.
Certain codes have no physician work RVUs. The overwhelming
majority of these codes are the technical components (TCs) of
diagnostic tests, such as x-rays and cardiac catheterization, which
have a distinctly separate technical component (the taking of an x-ray
by a technician) and professional component (the interpretation of the
x-ray by a physician). Examples of other codes with no work RVUs are
audiology tests and injections. These services are usually furnished by
nonphysicians, in this example, audiologists and nurses, respectively.
In many cases, the nonphysician or entity furnishing the TC is distinct
and separate from the physician ordering and interpreting the test. We
believe it is appropriate for the malpractice RVUs assigned to TCs to
be based on the malpractice costs of the nonphysician or entity, not
the professional liability of the physician.
Our proposed methodology, however, would result in zero malpractice
RVUs for codes with no physician work, since we propose the use of
physician work RVUs to adjust for risk-of-service. We believe that zero
malpractice RVUs would be inappropriate because nonphysician health
practitioners and entities such as independent diagnostic testing
facilities (IDTFs) also have malpractice liability and carry
malpractice insurance. Therefore, we are proposing to retain the
current charge-based malpractice RVUs for all services with zero work
RVUs. We are open to comments and suggestions for constructing
resource-based malpractice RVUs for codes with no physician work.

[[Page 47510]]

(4) Rescale for budget neutrality. The law requires that changes to
fee schedule RVUs be budget neutral. The current resource-based
malpractice RVUs and the proposed resource-based malpractice RVUs were
constructed using entirely different malpractice premium data. Thus,
the last step is to adjust for budget neutrality by rescaling the
proposed malpractice RVUs so that the total proposed resource-based
malpractice RVUs equal the total current resource-based malpractice
RVUs. The proposed resource-based malpractice RVUs for each procedure
were multiplied by the frequency count for that procedure to determine
the total resource-based malpractice RVUs for each procedure. This was
summed for all procedures to determine the total fee schedule proposed
resource-based malpractice RVUs. This was compared to the total current
resource-based malpractice RVUs, using the same calculation and cases.
The total current and proposed malpractice RVUs were equal, and
therefore budget neutral. Thus, no adjustments were needed to ensure
that expenditures remained constant for the malpractice RVU portion of
the physician fee schedule payment.
The proposed resource-based malpractice RVUs are shown in Addendum
B. These values have been adjusted for budget neutrality on the basis
of the most recent available data. The values do not reflect the final
budget-neutrality adjustment, which we will make in the final rule
based upon the more current Medicare claims data. We do not believe,
however, that the values will change significantly as a result of the
final budget-neutrality adjustment.
Because of the differences in the sizes of the three fee schedule
components, implementation of the proposed resource-based malpractice
RVUs will have a smaller payment effect than the previous
implementation of resource-based practice expense RVUs. On average,
work represents about 52.5 percent of the total payment for a
procedure, practice expense about 43.6 percent of the total payment,
and malpractice expense about 3.9 percent of the total payment. Thus, a
20 percent change in practice expense or work RVUs would yield a change
in payment of about 8 to 11 percent. In contrast, a corresponding 20
percent change in malpractice values would yield a change in payment of
only about 0.6 percent. Estimates of the effects on payment by
specialty and selected high-volume procedures can be found in the
impact section of this rule.
We are requesting comments on our proposed methodology and
resource-based malpractice RVUs.

D. Coding Issues

1. Change in Global Period for CPT Code 77427, Radiation Treatment
Management, Five Treatments
[If you choose to comment on issues in this section, please include the
caption ``CODING-GLOBAL PERIOD'' at the beginning of your comments.]
This code was included in the November 2, 1999 physician fee
schedule final rule and was effective for services beginning January 1,
2000. In that rule, and subsequent rules, we have applied a global
indicator of ``xxx'' to this code, meaning that the global concept does
not apply. It has been brought to our attention that this global
indicator is incorrect. The global indicator should be 090 since the
RUC valuation of this service reflected a global period of 90 days and
we accepted this valuation. Therefore, we would correct the global
indicator for this service to reflect a global period of 90 days (090).
2. Requests for Adding Services to the List of Medicare Telehealth
Services
[If you choose to comment on issues in this section, please include the
caption ``CODING--TELEHEALTH'' at the beginning of your comments.]
a. Background
Section 1834(m) of the Act defines telehealth services as
professional consultations, office and other outpatient visits, and
office psychiatry services identified as of July 1, 2000 by CPT codes
99241 through 99275, 99201 through 99215, 90804 through 90809, and
90862. In addition, the statute required us to establish a process for
adding services to or deleting services from the list of telehealth
services on an annual basis. In the CY 2003 final rule, we established
a process for adding or deleting services to the list of Medicare
telehealth services. This process provides the public an opportunity on
an ongoing basis to submit requests for adding a service. For more
information on submitting a request for addition to the list of
Medicare telehealth services, visit our Web site at http://www.cms.hhs.gov/physicians/telehealth
.

b. Submitted Requests for Addition to the List of Telehealth Services
Requests for adding services to the list of Medicare telehealth
services must be submitted and received no later than December 31st of
each calendar year to be considered for the next proposed rule. For
example, requests submitted in CY 2003 are considered for the CY 2005
proposed rule.
We received the following public requests for addition in CY 2003:
Inpatient hospital care, emergency department visits, hospital
observation services, inpatient psychotherapy, monthly management of
patients with end-stage renal disease (ESRD), speech and audiologist
services, case management, and care plan oversight.
Requests for additions submitted in CY 2003 are discussed below.
Inpatient hospital care, emergency department visits, hospital
observation services, and inpatient psychotherapy
The American Telemedicine Association (ATA) and an individual
practitioner submitted a request to add initial and subsequent
inpatient hospital care as represented by CPT codes 99221 through 99223
and 99231 through 99233; hospital observation services (CPT codes
99217, 99218 through 99220); and individual psychotherapy furnished in
an inpatient, partial hospitalization, or residential care facility
setting (as defined by CPT codes 90816 through 90822). The requestors
argue that the addition of hospital observation services, inpatient
hospital care, and inpatient psychotherapy will reduce transfers from
remote facilities to tertiary care facilities, decrease length of stay,
improve diagnostic accuracy, plan of care strategies and patient
outcomes, and also stabilize local health care systems. The requestors
emphasize that adding individual psychotherapy in the inpatient and
partial hospitalization setting is crucial for providing access to
mental health services for the rural population. Additionally, the
requestors believe that no current Medicare telehealth service can be
billed when a patient is in observation status or is admitted as an
inpatient. They also noted that the current psychiatry services paid
for as telehealth services are not appropriate for mental health
patients in the hospital, partial hospital, or residential facility
settings.
The University of Kansas Medical Center requested that we add
emergency department visits as defined by CPT codes 99281 through 99285
as telehealth services. The requestor stated that, for many rural
hospitals, the attending physician in emergency cases is a local
primary care or family physician who may not have sufficient experience
with the complexities of emergent care. The requestor believes that
adding emergency department visits will provide quicker access to an
expert trauma or emergency physician and that the time saved could be
life-saving for the patient.

[[Page 47511]]

CMS Review
As discussed in the June 28, 2002 Federal Register (67 FR 43862),
we assign requests to one of two categories for review. Category 1 is
comprised of services, which are similar in nature to an office or
other outpatient visit, consultation, or office psychiatry. We review
category 1 services to ensure that the roles of, and interaction among,
the patient, physician, or practitioner at the distant site and
telepresenter (if necessary) are similar to the current telehealth
services.
Category 2 services would include services that are not similar to
an office or other outpatient visit, consultation, or office
psychiatry. Because of the potential acuity of the patient in the
hospital setting, we consider inpatient hospital care, emergency
department visits, hospital observation services, and inpatient
psychotherapy to fall into the second category of requests. As
discussed on our website, for category 2 services, requestors must
provide evidence indicating that the use of a telecommunications system
produces similar diagnostic findings or therapeutic interventions as
would face-to-face delivery of the same service.
For inpatient hospital care, hospital observation services, and
inpatient psychotherapy, the requestors did not submit evidence
indicating that the use of a telecommunications system does not affect
the diagnosis or treatment plan as compared to the face-to-face
delivery of the service. The requestors instead submitted various
studies and articles regarding: the psychiatric diagnostic interview
examination; school-based pediatric acute care to children; child and
adolescent psychotherapy in clinics and schools; the use of telehealth
technology to simplify case management and prior authorization;
consultation on neurology cases; and nursing care to reduce
hospitalization for heart failure.
These data are not directly relevant to the services that the
requesters wanted to have added. They do not address whether the use of
a telecommunications system produces similar diagnoses or therapeutic
interventions by physicians or practitioners, as would the face-to-face
delivery of inpatient hospital care, hospital observation services, and
inpatient psychotherapy. With respect to emergency department visits,
the requestor submitted a comparison study between emergency department
telemedicine and face-to-face emergency department visits. However,
this study did not take into account complex emergent care. Study
participants were pre-selected based on cases with limited clinical
intervention, for example, animal bites with no skin laceration or
puncture wounds, insect bites without evidence of wheezing or airway
compromise, sore throat, first degree burns--less than 5 percent, and
nonurgent medical problems requiring a referral.
In the absence of sufficient, well-designed comparison studies
showing that the use of a telecommunications system produces similar
diagnoses or therapeutic interventions as would the face-to-face
delivery of the requested services, we are proposing not to add these
services to the list of telehealth services.
We believe that the current list of Medicare telehealth services is
appropriate for hospital inpatients, emergency room cases, and patients
designated as observation status. If guidance or advice is needed in
these settings, a consultation could be requested from an appropriate
source.
End Stage Renal Disease--Monthly Management of Patients on Dialysis
The ATA and an individual practitioner submitted a request that we
add the monthly management of patients on dialysis, as represented by
HCPCS codes G0308 through G0319, to the list of Medicare telehealth
services. Under these codes, Medicare pays an increased monthly
capitated payment amount for additional visits during the month (up to
four). The requestors noted the shortage of nephrologists and the
difficulty they have in visiting face-to-face with all patients on
dialysis. Additionally, the requestors stated that many States,
including Alaska, Hawaii, Montana, and Wisconsin, have remote
community-based dialysis centers with underserved populations located a
considerable distance from a nephrologist. To address this issue,
consultations and patient care conferences are currently being provided
using a telecommunications system to manage patients on dialysis
located in communities that do not have a nephrologist, including
communities in Texas, where dialysis consultations and assessments
using telecommunications are paid under the State's Medicaid program.
Given the claims of a shortage of nephrologists and the new face-to-
face visit requirements for physicians managing patients on dialysis,
the requestors believe that permitting the management of dialysis
patients through telehealth services is crucial.
CMS Review
The MCP G codes represent a range of services provided during a
month, including a complete assessment of the patient and subsequent
visits to monitor the patient's condition. We believe the types of
services provided as part of the subsequent visits included in the
codes are similar to the office and other outpatient visits currently
on the list of Medicare telehealth services. Therefore, we believe
these services would meet the criteria set forth in Category 1 of the
process for adding services described above. However, we do not believe
the complete assessment aspect of the MCP G codes is similar to
existing telehealth services. For example, one aspect of a complete
assessment would involve examination of the vascular access site. This
is a specific clinical examination that is not similar to other
services on the list.
Therefore, we consider the request for addition of the complete
assessment to the list of telehealth services to be a Category 2
request, requiring comparative analyses. In submitting their requests
for addition to the list of Medicare telehealth services, the
requestors included summaries of many studies related to renal dialysis
patient monitoring. However, we do not believe the requestor provided
comparative analyses illustrating that the use of a telecommunications
system is an adequate substitute for the clinical examination of the
vascular access site. We do not believe that the use of a
telecommunications system is an adequate method for conducting a
complete assessment of the ESRD beneficiary. We believe that a clinical
examination of the vascular access site can be adequately performed
only with a face-to-face, ``hands on'' examination of the patient.
However, we do believe the subsequent visits meet the criteria for
approving a Category 1 request. That is, we believe the roles and
interactions between the patient and the physician (or practitioner)
are similar to those of office and other outpatient visits currently on
the telehealth list. This presents a unique scenario, wherein a portion
of the services represented by the MCP G codes are eligible to add to
the list, but one service (the complete assessment) is not. To address
this issue, we propose to add the ESRD-related services with 2 or 3
visits per month and ESRD-related services with 4 or more visits per
month as described by G0308, G0309, G0311, G0312, G0314, G0315, G0317,
G0318 to the list of Medicare telehealth services. However, the
complete assessment of the ESRD

[[Page 47512]]

beneficiary would not be permitted through the use of a
telecommunications system. A comprehensive visit including a clinical
examination of the vascular access site must be furnished face-to-face
``hands on'' by a physician, clinical nurse specialist, nurse
practitioner, or physician's assistant. An interactive
telecommunications system may be used for providing additional visits
required under the 2-to-3 visit MCP and the 4-or-more visit MCP.
As noted previously, the MCP G codes are unique in that they
reflect the ongoing care provided to ESRD patients by the physician or
practitioner, on a monthly basis. These codes also reflect a range of
services, from a monthly comprehensive assessment to monitoring the
patient's overall condition and addressing individual issues and
concerns as they arise during the month. We believe these codes are
distinguishable from other codes by the scope of services and the
ongoing nature of the services provided. Therefore, we believe that it
would be appropriate to permit the use of a telecommunications system
for providing some of the visits required under the ESRD MCP and to add
these codes to the list of Medicare telehealth services.
The MCP physician, for example, the physician or practitioner who
provided the complete assessment, and other practitioners within the
same group practice or employed by the same employer/entity, may
furnish ESRD-related visits through a telecommunications system.
However, the physician or practitioner who performs the complete
assessment and establishes the plan of care should bill for the MCP in
any given month.
Clinical Criteria--The complete assessment visit must be conducted
face-to-face. For subsequent visits, the physician or practitioner at
the distant site is required, at a minimum, to use an interactive audio
and video telecommunications system that allows the physician or
practitioner to provide medical management services for a maintenance
dialysis beneficiary. For example, an ESRD visit conducted via
telecommunications system must permit the physician or practitioner at
the distant site to perform an assessment of whether the dialysis is
working effectively and whether the patient is tolerating the procedure
well (physiologically and psychologically). During this assessment, the
physician or practitioner at the distant site must be able to determine
whether alteration in any aspect of the beneficiary's prescription is
indicated, due to such changes as the estimate of the patient's dry
weight.
Clarification on originating sites--The statute currently defines a
telehealth originating site as a physician's or practitioner's office,
hospital, critical access hospital, rural health clinic, or Federally-
qualified health center. ESRD facilities are not originating sites
(dialysis facilities are not defined in the statute as originating
sites). Subsequent visits (other than the comprehensive assessment) in
any of the statutorily-covered settings could be provided via
telecommunications equipment, including a physician's satellite office
within a dialysis center. Adding dialysis facilities to the list of
Medicare telehealth originating sites would require a legislative
change.
Speech and Audiologist Services
The American Speech-Language Hearing Association (ASHA) requested
that we add 36 audiology services (CPT code range 92541 through 92596)
and 30 speech language pathology (SLP) services (CPT code range 31575
through 97703) to the list of Medicare telehealth services. The ASHA
believes the cognitive nature of these services makes them well-suited
for telehealth and noted several telehealth programs that have been
successful at providing SLP and audiology services. For example,
existing telehealth networks were cited as successfully providing
diagnosis, treatment, and management recommendations for patients with
speech language and hearing disorders.
CMS Review
Speech language pathologists and audiologists are not permitted
under current law to provide and receive payment for Medicare
telehealth services at the distant site. The statute permits only a
physician, as defined by section 1861(r) of the Act or a practitioner
as described in section 1842(b)(18)(C) of the Act (clinical nurse
specialist, nurse practitioner, physician assistant, nurse midwife,
clinical psychologist, and clinical social worker), to furnish Medicare
telehealth services. We are exploring this issue as part of a report to
Congress (required by section 223(d) of BIPA) on additional sites and
settings, geographic areas, and practitioners that may be reimbursed
for the provision of telehealth services. At this time, we are not
adding speech and audiology services to the list of Medicare telehealth
services.
Case Management and Care Plan Oversight (Team Conferences and Physician
Supervision)
Two requests were submitted asking that we add medical team
conferences as identified by CPT codes 99361 and 99362 and physician
supervision (CPT codes 99374 and 99375) as telehealth services.
Requestors stated that for these services, the use of a
telecommunications system provides interdisciplinary medical teams
serving remote underserved populations better access to the clinical
expertise and decision making of specialty physicians. The requestors
note that the current list of Medicare telehealth services, for
example, consultations or office visits, cannot be used for case
management and care plan oversight services because the patient is not
typically present.
CMS Review
Medical team conferences and monthly physician supervision are
already covered Medicare services and do not require a face-to-face
encounter with the beneficiary. Under the Medicare program, the use of
a telecommunications system in furnishing a telehealth service is a
substitution for the face-to-face requirements of a service. Since
medical team conferences and monthly physician supervision do not
require a face-to-face encounter with the patient, we cannot add these
services to the list of Medicare telehealth services.
Review Summary
For the reasons stated above, we propose to add ESRD-related
services as described by G0308, G0309, G0311, G0312, G0314, G0315,
G0317 and G0318 to the list of Medicare telehealth services.
Moreover, we would add the term ``ESRD-related visits'' to the
definition of Medicare telehealth services at CFR 410.78 and 414.65 as
appropriate.
We do not propose to add any additional services discussed above to
the list of Medicare telehealth services for CY 2005.
3. National Pricing of G0238 and G0239 Respiratory Therapy Service
Codes
[If you choose to comment on issues in this section, please include the
caption ``CODING--RESPIRATORY THERAPY'' at the beginning of your
comments.]
In the 2001 final rule, we created three G codes for respiratory
therapy services: G0237 Therapeutic procedures to increase strength or
endurance of respiratory muscles, face-to-face, one-on-one, each 15
minutes (includes monitoring), G0238 Therapeutic procedures to improve

[[Page 47513]]

respiratory function, other than ones described by G0237, one-on-one,
face-to-face, per 15 minutes (includes monitoring) and G0239
Therapeutic procedures to improve respiratory function or increase
strength or endurance of respiratory muscles, two or more individuals
(includes monitoring).
We assigned RVUs to one of the codes (G0237), and indicated that
the other two codes (G0238 and G0239) would be carrier-priced. Since
the services represented by these codes are frequently being performed
in comprehensive outpatient rehabilitation facilities, and paid under
the physician fee schedule through fiscal intermediaries, there has
been some uncertainty surrounding the payment for the carrier-priced
services. We believe assigning RVUs to G0238 and G0239 would alleviate
some of this uncertainty. Since these services are typically performed
by respiratory therapists, no physician work was assigned to G0237, and
we are not proposing work RVUs for either G0238 or G0239.
Therefore, we are proposing to value these services using the
nonphysician workpool.
We propose practice expense RVUS for G0238 equal to those for
G0237. While these codes represent two different types of activities
(G0237 involves therapeutic procedures specifically targeted at
improving the strength and endurance of respiratory muscles such as
pursed-lip breathing, diaphragmatic breathing, and paced breathing, and
G0238 involves other activities such as teaching patients strategies
for performing tasks with less respiratory effort and the performance
of graded activity programs to increase endurance and strength of upper
and lower extremities), we believe that the practice expense involved
is substantially the same for both services and thus, propose to
crosswalk the practice expense RVUs for G0237 to G0238.
G0239 represents situations in which two or more individuals are
receiving services simultaneously (such as those described above in
G0237 or G0238) during the same time period. Although the practitioner
must be in constant attendance, he or she need not be providing one-on-
one patient contact. For G0239, we believe a typical group session to
be 30 minutes in length and to consist of 3 patients. Therefore, for
the practice expense RVUs for G0239, we will use the practice expense
RVUs of G0237 reduced by one-third to account for the fact that the
service is being provided to more than one patient simultaneously and
each patient in a group can be billed for the services of G0239.
We also propose a malpractice RVU of 0.02, the malpractice RVU
assigned to G0237, for these two G codes.
4. Bone Marrow Aspiration and Biopsy Through the Same Incision on the
Same Date of Service
[If you choose to comment on issues in this section, please include the
caption ``CODING--BONE MARROW ASPIRATION'' at the beginning of your
comments.]
In the physician fee schedule final rule published on June 28, 2002
(67 FR 43864), we proposed creation of a new G-code that reflects a
bone marrow biopsy and aspiration procedure performed on the same date,
at the same encounter, through the same incision. While some commenters
were supportive of this proposal, other commenters felt that creation
of a G-code was unnecessary and that any concerns with respect to
payment could be addressed through application of the multiple
procedure payment rules. In a final rule published on December 31, 2002
(67 FR 79992), we agreed that the code should go through the CPT
process and did not make our proposal final.
To date, CPT has not addressed the issue. Therefore, we are
proposing to create a G-code for this service in 2005. We believe that
there is minimal incremental work associated with performing the second
procedure through the same incision during a single encounter and are
proposing an add-on G-code to reflect the additional physician work and
practice expense. As we had stated in our previous proposal, if the two
procedures, aspiration and biopsy, are performed at different sites
(for example, contralateral iliac crests, sternum/iliac crest or two
separate incisions on the same iliac crest), the -59 modifier, which
denotes a distinct procedural service, would be appropriate to use and
Medicare's multiple procedure rules would apply. In this instance, the
CPT codes for aspiration and biopsy would each be used.

G0XX1: Bone Marrow Aspiration Performed With Bone Marrow Biopsy Through
Same Incision on Same Date of Service, Add-On

The code would be used when a bone marrow aspiration and a bone
marrow biopsy are performed on the same day through a single incision.
The physician would use the CPT code for bone marrow biopsy (38221) and
G0XX1 for the second procedure (bone marrow aspiration).
Based on our estimation that the time associated with this G-code
is approximately 5 minutes and based on a comparison to CPT code 38220
which has 34 minutes of intraservice time and a work RVU of 1.08 work,
we are proposing 0.16 work RVUs for this proposed G-code. The proposed
malpractice RVUs are 0.04 which are the current malpractice RVUS
assigned to CPT code 38220. We are proposing the following practice
expense inputs:

--Clinical staff time: Registered nurse--5 minutes
Lab technician--2 minutes
--Equipment: Exam table

We are also proposing a ZZZ global period for this add-on code
since this code is related to another service and is included in the
global period of the other service.
5. Q Code for the Set-Up of Portable X-Ray Equipment
The Q-code for the set-up of portable x-ray equipment, Q0092, is
currently paid under the physician fee schedule and is assigned an RVU
of 0.33. In 2004, this produces a national payment of $12.32. This set-
up code encompasses only a portion of the resources required to provide
a portable x-ray service to patients. In 2003, portable x-ray suppliers
received total Medicare payments of approximately $208 million. More
than half of these payments (approximately $116 million) were for
portable x-ray transportation (codes R0070 and R0075). The portable x-
ray set-up code (Q0092) generated approximately $19 million in
payments. The remainder of the Medicare payments for portable x-ray
services (approximately $73 million) were for the actual x-ray services
themselves.
Between 2002 and 2004, the Medicare carriers increased the average
amount paid for portable x-ray transportation across the country from
about $89 to $112, an increase of about 25 percent (transportation is
carrier-priced). Nonetheless, the Conference Report accompanying the
Consolidated Appropriations Bill, HR 2673 (Pub. L. 108-199, enacted
January 23, 2004), urged the Secretary to review and update the RVUs
for Q0092 utilizing existing data.
In 2002, the National Association of Portable X-ray Providers had
requested that we use their cost data to develop practice expense RVUs
for the physician fee schedule services they provide. We asked the
Lewin Group to evaluate the data using the same standards of review
applied to other specialty survey data. The Lewin Group found that the
data as presented were not adequately detailed

[[Page 47514]]

to calculate a practice expense per hour based on the current practice
expense methodology. Therefore, we did not use the data. However, in
response to ongoing requests from the portable x-ray industry that we
reexamine payments for this code, we have reevaluated this code.
This code is currently priced in the nonphysician work pool.
Removing this code from the nonphysician work pool has an overall
negative impact on payments to portable x-ray suppliers (as a result of
decreases to radiology codes that remain in the nonphysician work pool)
and has a negative impact on many of the codes remaining in the
nonphysician workpool. An alternative to national pricing of portable
x-ray set-up would be to require Medicare carriers to develop local
pricing as they do currently for portable x-ray transportation. In
2002, we received a comment from a supplier of portable x-rays stating
that the practice costs associated with set-up of portable x-ray
equipment are not included in the Socioeconomic Monitoring System (SMS)
and that there are sufficient differences among geographic regions in
the performance of this procedure that warrant reclassifying this
service as carrier-priced. We are interested in public comments on
whether we should pursue national pricing for portable x-ray set-up
outside of the nonphysician work pool or local carrier pricing for 2005
or whether we should continue to price the service in the nonphysician
workpool.
6. Venous Mapping for Hemodialysis
We are proposing to create a new G-code (G0XX3: Venous mapping for
hemodialysis access placement (Service to be performed by operating
surgeon for preoperative venous mapping prior to creation of a
hemodialysis access conduit using an autogenous graft). Autogenous
grafts have longer patency rates, a lower incidence of infection and
greater durability than prosthetic grafts. Use of autogenous grafts can
also result in a decrease in hospitalizations and morbidity related to
vascular access complications. Creation of this G-code will enable us
to distinguish between CPT code 93971 (Duplex scan of extremity veins
including responses to compression and other maneuvers; unilateral or
limited study) and G0XX3. This new code will allow us to track use of
venous mapping for quality improvement purposes.
This G code would only be billed by the operating surgeon in
conjunction with the following CPT codes: 36819, 36821, 36825, and
36832. Because CPT code 93971 and the new G-code would be used to
describe a similar service, we would propose that we not permit payment
for CPT code 93971 when this G-code is billed, unless code 93971 were
being performed for a separately identifiable clinical indication in a
different anatomic region.
The physician work, practice expense and professional liability
expense for this new G code would be the same as those for CPT code
93971. Thus, we propose to crosswalk the RVUs for the new G-code from
those of CPT code 93971. We would also assign this new G-code a global
period of ``XXX'', which means that the global concept does not apply.

III. Provisions of the Medicare Modernization Act of 2003

A. Section 611--Initial Preventive Physical Examination

[If you choose to comment on issues in this section, please include the
caption ``Section 611'' at the beginning of your comments.]
1. Coverage of Initial Preventive Physical Examinations
Section 611 of the MMA provides for coverage under Part B of an
initial preventive physical examination for new beneficiaries,
effective for services furnished on or after January 1, 2005, subject
to certain eligibility and other limitations.
Previously, Medicare law had not allowed for payment for routine
physical examinations or checkups. Section 1862(a)(7) of the Act states
that routine physical checkups are excluded services. This exclusion is
described in Sec. 411.15(a) (Particular services excluded from
coverage). In addition, we have interpreted section 1862(a)(1)(A) of
the Act to exclude coverage for preventive physical examinations. This
section provides that items and services must be reasonable and
necessary for the diagnosis or treatment of illness or injury or to
improve the functioning of a malformed body member as stated in Sec.
411.15(k). Since preventive services are not provided for diagnosis or
treatment of illness, injury, or malformation, we determined that these
services are not reasonable and necessary within the meaning of the
statute.
To conform the regulations to the MMA, we are specifying an
exception to the list of examples of routine physical examinations
excluded from coverage in Sec. 411.15(a)(1) and Sec. 411.15(k)(11)
for initial preventive physical examinations that meet the eligibility
limitation and the conditions for coverage that we are specifying under
Sec. 410.16--Initial Preventive Physical Examinations.
Coverage of initial preventive physical examinations is provided
under Medicare Part B only. The MMA permits payment for one initial
preventive physical examination within the first 6 months after the
effective date of the beneficiary's first Part B coverage period, but
only if that coverage period begins on or after January 1, 2005.
We are proposing to add Sec. 410.16(b), Condition for Coverage of
Initial Preventive Physical Examinations, and Sec. 410.16(c),
Limitation on Coverage of Initial Preventive Physical Examinations, to
provide for coverage of the various initial preventive physical
examination services specified in the statute.
We are proposing to define several terms, as described specifically
in Sec. 410.16, that would be used in implementing the statutory
provisions, including definitions of the following terms--
(1) Eligible beneficiary;
(2) An initial preventive physical examination;
(3) Medical history;
(4) Physician;
(5) Qualified nonphysician practitioner.
(6) Social history;
(7) Review of the individual's functional ability and level of
safety;
Section 611 of the MMA defines an ``initial preventive physical
examination'' to mean physicians' and certain qualified nonphysician
practitioners' services consisting of--
(1) A physical examination (including measurement of height,
weight, blood pressure, and an electrocardiogram, but excluding
clinical laboratory tests) with the goal of health promotion and
disease detection; and
(2) Education, counseling, and referral with respect to screening
and other covered preventive benefits separately authorized under
Medicare Part B.
Specifically, section 611(b) of the MMA provides that the
education, counseling, and referral of the individual by the physician
or other qualified nonphysician practitioner should be with respect to
the following statutory screening and other preventive services
authorized under Medicare Part B:
(1) Pneumococcal, influenza, and hepatitis B vaccine and their
administration.
(2) Screening mammography.
(3) Screening pap smear and screening pelvic exam services.
(4) Prostate cancer screening services.
(5) Colorectal cancer screening tests.
(6) Diabetes outpatient self-management training services;

[[Page 47515]]

(7) Bone mass measurements.
(8) Screening for glaucoma.
(9) Medical nutrition therapy services for individuals with
diabetes or renal disease.
(10) Cardiovascular screening blood tests.
(11) Diabetes screening tests.
Based on the language of the statute, our review of the medical
literature, current clinical practice guidelines, and United States
Preventive Services Task Force recommendations, we are proposing to
interpret the term, ``initial preventive physical examination,'' for
purposes of this new benefit to include all of the following:
(1) Review of the individual's comprehensive medical and social
history, as those terms are defined in paragraph (a) of proposed Sec.
410.16.
(2) Review of the individual's potential (risk factors) for
depression (including past experiences with depression or other mood
disorders) based on the use of an appropriate screening instrument
which the physician or other qualified nonphysician practitioner may
select from various available standardized screening tests for this
purpose, unless the appropriate screening instrument is defined through
the national coverage determination (NCD) process.
(3) Review of the individual's functional ability and level of
safety, as described in paragraph (a) of proposed Sec. 410.16, (that
is, at a minimum, a review of the following areas: hearing impairment,
activities of daily living, falls risk, and home safety), based on the
use of an appropriate screening instrument, which the physician or
other qualified nonphysician practitioner may select from various
available standardized screening tests for this purpose, unless the
appropriate screening instrument is further defined through the NCD
process.
(4) An examination to include measurement of the individual's
height, weight, blood pressure, a visual acuity screen, and other
factors as deemed appropriate by the physician or qualified
nonphysician practitioner, based on the individual's comprehensive
medical and social history and current clinical standards.
(5) Performance and interpretation of an electrocardiogram.
(6) Education, counseling, and referral, as appropriate, based on
the results of the previous five elements of the initial preventive
physical examination.
(7) Education, counseling, and referral, including a written plan
provided to the individual for obtaining the appropriate screening and
other preventive services, which are separately covered under Medicare
Part B benefits; that is, pneumococcal, influenza, and hepatitis B
vaccines and their administration, screening mammography, screening pap
smear and screening pelvic exams, prostate cancer screening tests,
diabetes outpatient self-management training services, bone mass
measurements, screening for glaucoma, medical nutrition therapy
services, cardiovascular screening blood tests, and diabetes screening
tests.
We are requesting public comments on the definition of the term
``initial preventive physical examination.'' For example, we have
chosen not to define the term, ``appropriate screening instrument,''
for screening individuals for depression, functional ability, and level
of safety, as specified in the proposed rule, because we anticipate
that the examining physician or qualified nonphysician practitioner
will want to use the test of his or her choice, based on current
clinical practice guidelines. We believe that any standardized
screening test for depression, functional ability, and level of safety
recognized by the American Academy of Family Physicians, the American
College of Physicians-American Society of Internal Medicine, the
American College of Preventive Medicine, the American Geriatrics
Society, the American Psychiatric Association, or the United States
Preventive Services Task Force, or other recognized medical
professional group, would be acceptable for purposes of meeting the
``appropriate screening instrument'' provision. We ask that commenters
making specific recommendations on this or any related issue provide
documentation from the medical literature, current clinical practice
guidelines, or the United States Preventive Services Task Force
recommendations.
We recognize that the NCD process could be used to define more
specifically the type or types of appropriate screening instruments for
depression, functional ability, or level of safety and propose to
include in Sec. 410.16(a) in elements (2) and (3) of the definition of
an initial preventive physical examination a reference that would allow
us to define these screening instruments more specifically through the
national coverage determination (``NCD'') process. The NCD process
would include an opportunity for public comment on the medical and
scientific issues related to the coverage of the new tests that may be
brought to our attention in the future. Use of an NCD to establish a
change in the scope of benefits is authorized by section 1871(a)(2) of
the Act.
2. Payment for Initial Preventive Physical Examination
There is no current CPT code that contains the specific elements
included in the initial preventive examination. Therefore, we are
proposing to establish the following new HCPCS code, G0XX2, Initial
preventive physical examination, to be used for billing for the initial
preventive examination. As required by the statute, this code includes
an electrocardiogram, but does not include the other previously
mentioned preventive services that are currently separately covered and
paid under the Medicare Part B screening benefits. When these other
preventive services are performed, they should be identified using the
existing appropriate codes.
a. Basis for Payment
Payment for this new HCPCS code will be based on the following:
1. Work RVUs--We are proposing a work value of 1.51 RVUs for G0XX2.
This value is based on our determination that this new service has
equivalent resources and work intensity to those contained in CPT E/M
code 99203, new patient, office or other outpatient visit, and CPT code
93000 electrocardiogram, complete. CPT code 99203 has a work RVU of
1.34 and requires a detailed history, detailed examination, and medical
decision making of low complexity, which we believe to be
representative of the elements contained in the initial preventive
health examination. CPT code 93000, which is for a routine ECG with the
interpretation and report, has a work RVU of 0.17.
2. Malpractice RVUs--For the malpractice component of G0XX2, we are
proposing malpractice RVUs of 0.13 in the nonfacility setting based on
the malpractice RVUs currently assigned to CPT code 99203 (0.10) and
CPT code 93000 (0.03). In the facility setting, we are proposing
malpractice RVUs of 0.11 based on the current malpractice RVUs assigned
to CPT code 99203 (0.10) and 93010 (an EKG interpretation with a value
of 0.01).
3. Practice Expense RVUs--For the practice expense component of
G0XX2, we are proposing practice expense RVUs of 1.65 in the
nonfacility setting based on the practice RVUs assigned to CPT code
99203 (1.14) and CPT code 93000 (0.51). In the facility setting, we are
proposing practice expense RVUs of 0.54 based on the practice RVUs
assigned to CPT code 99203 (0.48) and 93010 (0.06).

[[Page 47516]]

b. Evaluation and Management (E/M) Service
Since some of the components for a medically necessary E/M visit
are reflected in this new HCPCS code, we are also proposing, when it is
appropriate, to allow a medically necessary E/M service no greater than
a level 2 to be reported at the same visit as the initial preventive
physical examination. That portion of the visit must be medically
necessary to treat the patient's illness or injury or to improve the
function of a malformed body member and should be reported with
modifier -25. The physician or qualified nonphysician practitioner
could also bill for the screening and other preventive services
currently covered and paid by Medicare Part B under separate provisions
of section 1861 of the Act, if provided during this initial preventive
physical examination.
c. Coinsurance and Part B Deductible
MMA did not make any provision for the waiver of the Medicare
coinsurance and Part B deductible for the initial preventive physical
examination. Payment for this service would be applied to the required
deductible, which is $110 for CY 2005, if the deductible has not been
met, and the usual coinsurance provisions would apply.

B. Section 613--Diabetes Screening Tests

[If you choose to comment on issues in this section, please include the
caption ``Section 613'' at the beginning of your comments.]
Section 613 of the MMA adds section 1861(yy) to the Act and
mandates coverage of diabetes screening tests.
The term ``diabetes screening tests'' is defined in section 613 as
testing furnished to an individual at risk for diabetes including a
fasting plasma glucose test and such other tests, and modifications to
tests, as the Secretary determines appropriate, in consultation with
appropriate organizations. In compliance with this directive, we
consulted with the American Diabetes Association, the American
Association of Clinical Endocrinologists, and the National Institute
for Diabetes and Digestive and Kidney Diseases.
1. Coverage
We are proposing in Sec. 410.18 that Medicare cover--
A fasting plasma glucose test; and
Post-glucose challenge tests; either an oral glucose
tolerance test with a glucose challenge of 75 grams of glucose for
nonpregnant adults, or a 2-hour post-glucose challenge test alone.
We would not include a random serum or plasma glucose for persons
with symptoms of uncontrolled diabetes such as excessive thirst or
frequent urination in this benefit because it is already covered as a
diagnostic service. This language is not intended to exclude other
post-glucose challenge tests that may be developed in the future,
including panels that may be created to include new diabetes and lipid
screening tests. We also would include language that would allow
Medicare to cover other diabetes screening tests, subject to a NCD
process. We are requesting comments regarding the specific tests,
definitions, and eligibility criteria. The comments that we receive
will also be used to create the list of billing codes for covered tests
and diagnosis codes that would be published in instructions for
Medicare contractors.
The statutory provision describes an ``individual at risk for
diabetes'' as having any of the following risk factors:
1. Hypertension.
2. Dyslipidemia.
3. Obesity, defined as a body mass index greater than or equal to
30 kg/m2.
4. Previous identification of an elevated impaired fasting glucose.
5. Previous identification of impaired glucose tolerance.
6. A risk factor consisting of at least two of the following
characteristics:
(a) Overweight, defined as a body mass index greater than 25 kg/m2,
but less than 30.
(b) A family history of diabetes.
(c) A history of gestational diabetes mellitus or delivery of a
baby weighing greater than 9 pounds.
(d) 65 years of age or older.
The statutory language directs the Secretary to establish standards
regarding the frequency of diabetes screening tests that will be
covered and limits the frequency to no more than twice within the 12-
month period following the date of the most recent diabetes screening
test of that individual.
We are proposing that Medicare beneficiaries diagnosed with ``pre-
diabetes'' be eligible for the maximum frequency allowed by the
statute, that is, 2 screening tests per 12 month period. We propose to
define ``pre-diabetes'' as a previous fasting glucose level of 100-125
mg/dL, or a 2-hour post-glucose challenge of 140-199 mg/dL. This
definition of ``pre-diabetes'' was developed with the assistance of the
American Association of Clinical Endocrinologists and complements the
definition of diabetes that we published November 7, 2003 (68 FR
63195). We are specifically asking for comments regarding our new
definition of ``pre-diabetes.'' We are also requesting suggestions for
the definition of ``a family history of diabetes.''
For individuals not meeting the ``pre-diabetes'' criteria, we are
proposing that one diabetes screening test be covered per individual
per year.
2. Payment
We are proposing to pay for the screening diabetes tests at the
same amounts paid for these tests when performed to diagnose an
individual with signs and symptoms of diabetes. We would pay for these
tests under the clinical laboratory fee schedule. We propose to pay for
these tests under CPT code 82947 Glucose; quantitative, blood (except
reagent strip) and CPT code 82951 Glucose; tolerance test (GTT), three
specimens (includes glucose). To indicate that the purpose of the test
is for diabetes screening, we would require that the laboratory include
a screening diagnosis code in the diagnosis section of the claim. We
propose V77.1 Special screening for diabetes mellitus as the applicable
ICD-9--CM code for this purpose. Because laboratories are required and
accustomed to submitting diagnosis codes when requesting payment for
testing, we believe including a screening diagnosis code is appropriate
for this benefit.

C. Section 612--Cardiovascular Screening Blood Tests

[If you choose to comment on issues in this section, please include the
caption ``Section 612'' at the beginning of your comments.]
Section 612 of the MMA provides for Medicare coverage of cardiovascular
screening blood tests for the early detection of cardiovascular disease
or abnormalities associated with an elevated risk for that disease
effective on or after January 1, 2005.
1. Coverage
The Act requires coverage of tests for cholesterol and other lipid
or trigylcerides levels for this purpose. It also authorizes the
Secretary to approve coverage of other screening tests for other
indications associated with cardiovascular disease or an elevated risk
for that disease, including indications measured by noninvasive
testing, if the United States Preventive Services Task Force (USPSTF)
recommended a blood test for that indication.
We invited comments about the types of tests from the American
College of Physicians/ American Society of Internal Medicine, the
American College of Cardiology, American Academy of

[[Page 47517]]

Family Physicians, American Heart Association, College of American
Pathologists, American Society for Clinical Laboratory Science,
American Society for Clinical Pathologists, American Association for
Clinical Chemistry, and the American Clinical Laboratory Association.
Comments were received from the American Heart Association, American
Academy of Family Physicians, the American Association for Clinical
Chemistry, American Society for Clinical Laboratory Science, the
National Kidney Foundation, and the Vascular Disease Foundation,
regarding the coverage of a number of cardiovascular screening tests in
addition to the required blood lipid tests; for example, high
sensitivity C-Reactive Protein (CRP), homocysteine, or Beta Naturetic
Protein (BNP), electrocardiograms, Doppler and noninvasive vascular
tests, and a skin reflectance test.
We also reviewed the following 2001 recommendations of the USPSTF
regarding screening for lipid disorders that are associated with
cardiovascular disease:
a. Clinicians should routinely screen men aged 35 years and older
and women aged 45 years and older for lipid disorders and treat
abnormal lipids in people who are at increased risk.
b. Clinicians should routinely screen younger adults (men aged 20
to 35 and women aged 20 to 45) for lipid disorders if they have other
risk factors for coronary heart disease.
c. No recommendation was made for or against routine screening for
lipid disorders in younger adults (men aged 20 to 35 or women aged 20
to 45) in the absence of known risk factors for coronary heart disease.
d. Screening for lipid disorders should include measurement of
total cholesterol (TC) and high-density lipoprotein cholesterol (HDL-
C).
e. Evidence is insufficient to recommend for or against
trigylcerides measurement as a part of routine screening for lipid
disorders.
Based on the statutory language and our review of the scientific
literature, expert opinion, and the USPSTF recommendations, we are
proposing coverage of the following three screening blood tests for
conditions associated with cardiovascular disease:
(1) A total cholesterol test.
(2) A cholesterol test for high density lipoproteins.
(3) A triglycerides test.
These tests should be performed as part of a panel and should be
done after a 12-hour fast. We are also proposing coverage of each of
these tests once every 5 years. The statute provides that the Secretary
shall establish frequency standards for the coverage of cardiovascular
screening blood tests, provided the frequency is no more often than
once every 2 years. However, the scientific literature shows that
cholesterol levels are fairly stable and do not fluctuate drastically
for those older than age 65. The USPSTF clinical considerations
indicate that, while screening may be appropriate in older people,
repeated screening is less important because lipid levels are less
likely to increase after age 65. Under the USPSTF recommendations,
routine measurement of total cholesterol and HDL cholesterol every 5
years is recommended by the National Cholesterol Education program
Adult Treatment Panel II (ATP II), sponsored by the National Institutes
of Health, and endorsed by the American Heart Association. In addition,
the most recent Report of the Adult Treatment Panel (ATP III) includes
similar recommendations. In all adults aged 20 years or older, a
fasting lipoprotein profile (total cholesterol, LDL cholesterol, high
density lipoprotein (HDL) cholesterol, and triglyceride) should be
obtained once every 5 years. Since the LDL cholesterol can be
calculated, the remaining tests, which are part of the lipid panel, are
the tests we are proposing for coverage under this new benefit at a 5-
year screening interval. We do not believe the evidence justifies or
the statute allows for coverage of other cardiovascular screening blood
tests at this time.
To facilitate our consideration of future coverage of other new
types of cardiovascular screening blood tests, we have decided to add a
provision to this proposed regulation that, in addition to the specific
cardiovascular screening blood tests proposed for coverage in this
proposed rule, would provide that other types of these tests may be
covered under this new screening benefit, if we determine that this is
appropriate through a National Coverage Determination (NCD). This
provision would allow us to conduct a more timely assessment of other
new types of cardiovascular screening blood tests that may have been
approved for marketing by the Food and Drug Administration and
recommended by the USPSTF than is possible under the standard
rulemaking process. We intend to use the NCD process, which includes an
opportunity for public comments, for evaluating the medical and
scientific issues relating to the coverage of additional tests that may
be brought to our attention in the future. Use of an NCD to establish a
change in the scope of benefits is authorized by section 1871(a)(2) of
the Act. These proposed coverage requirements are set forth in new
section Sec. 410.17.
2. Payment
Section 612 of the MMA provides for Medicare coverage of
cardiovascular screening blood tests for the early detection of
cardiovascular disease or abnormalities associated with an elevated
risk for cardiovascular disease. The coverage is effective on or after
January 1, 2005. We are proposing to pay for the screening
cardiovascular disease tests at the same amounts paid for these tests
when they are performed to diagnose an individual with signs and
symptoms of cardiovascular disease. Medicare would pay for the tests
under the clinical laboratory fee schedule. We propose to use the
following CPT codes:
82465 Cholesterol, serum or whole blood, total.
83718 Lipoprotein, direct measurement; high density
cholesterol (HDL cholesterol).
84478 Triglycerides.
80061 Lipid Panel.
To indicate that the purpose of the test is for cardiovascular
screening, we propose that the laboratory include in the diagnosis
section of the claim the diagnosis code that provides the highest
degree of accuracy and completeness in describing the diagnosis. We
propose that the applicable ICD-9-CM codes for cardiovascular screening
blood tests be selected from the following:
V81.0 Special screening for ischemic heart disease.
V81.1 Special screening for Hypertension.
V81.2 Special screening for other and unspecified
cardiovascular conditions.
Because laboratories are required and accustomed to submitting
diagnosis codes when requesting payment for testing, we believe
including a screening diagnosis code for this purpose will not be
unduly burdensome to them.

D. Section 413--Physician Scarcity Areas and Health Professional
Shortage Areas Incentive Payments

[If you choose to comment on issues in this section, please include the
caption ``Section 413'' at the beginning of your comments.]
1. Background
Section 4043 of the Omnibus Budget Reconciliation Act (OBRA) of
1987 added section 1833(m) to the Act to provide incentive payments to
physicians who furnish services to

[[Page 47518]]

Medicare beneficiaries in Health Professional Shortage Areas (HPSAs).
Under section 1833(m) of the Act, a 5 percent payment was added,
beginning January 1, 1989, to the amounts otherwise payable under the
physician fee schedule to doctors who furnish covered services to
Medicare patients in designated HPSAs. Section 6102 of OBRA 1989
further amended section 1833 of the Act to raise the amount of this
incentive payment from 5 percent to 10 percent for services furnished
after December 31, 1990. The OBRA 1989 amendment also increased
eligible service areas to include both rural and urban HPSAs. The
Congress established the HPSA incentive payments as incentives to
attract new physicians to medically underserved communities and to
encourage physicians in those areas to remain there.
Eligibility for receiving the 10 percent incentive payment is based
on whether the specific location at which the service is furnished is
within an area that is designated (under section 332(a)(1)(A) of the
Public Health Service Act (PHS)) as a HPSA. The Health Resources and
Services Administration of the Department of Health and Human Services
(HRSA) is responsible for designating shortage areas. HRSA designates
several types of HPSAs. Some HPSAs are areas with shortages of primary
care physicians, dentists, or psychiatrists. These shortage
designations are referred to as geographic-based HPSAs. Also, there are
HPSA designations based on underserved populations within an area,
which are referred to as population-based HPSAs.
Section 1833(m) of the Act provides incentive payments for
physicians who furnish services in areas designated as HPSAs under
section 332(a)(1)(A) of the PHS Act. These include all three types of
geographic-based HPSAs (primary medical care, dental, and mental
health). Consequently, physicians, including psychiatrists, furnishing
services in a primary medical care HPSA are eligible to receive bonus
payments. Medicare HPSA bonus payments apply to all physicians who
perform covered services within a primary medical care HPSA, regardless
of specialty. In addition, psychiatrists furnishing services in mental
health HPSAs are eligible to receive incentive payments. We do not
recognize dental HPSAs for the Medicare HPSA payment program because
Medicare does not cover general dental services for its beneficiaries.
Since the inception of the Medicare HPSA incentive payment program,
physicians have been responsible for indicating their eligibility for
the incentive payment on the Medicare billing form. To facilitate the
verification of eligibility, physicians have been notified by their
Medicare carriers when changes (withdrawals, revisions, or
replacements) occur in HPSA designations. Using this information from
carriers, physicians have been required to verify their eligibility and
correctly code their Medicare claims using modifiers (QB for rural
HPSAs and QU for urban HPSAs) to receive incentive payments.
2. New Legislation
a. Physician Scarcity Areas
Section 413(a) of the MMA, provides a new 5 percent incentive
payment to physicians furnishing services in physician scarcity areas.
The MMA adds a new section 1833(u) of the Act which provides for paying
primary care physicians furnishing services in a primary care scarcity
county and specialty physicians furnishing services in a specialist
care scarcity county, an additional amount equal to 5 percent of the
amount paid for these services. Eligible physicians furnishing services
in an area qualified as a physician scarcity area (PSA) and HPSA would
be entitled to receive both incentive payments, that is, a 15 percent
bonus payment. Eligibility for receiving both incentive payments is
time limited (January 1, 2005 to January 1, 2008) because the 5 percent
PSA bonus is scheduled to sunset on December 31, 2007.
The Congress created the new 5 percent incentive payment program to
make it easier to recruit and retain both primary and specialist care
physicians for furnishing services to Medicare beneficiaries in PSAs.
The two measures of physician scarcity are defined by the statute
as follows:
1. The primary care scarcity areas are determined by the ratio of
primary care physicians to Medicare beneficiaries.
2. The specialist care scarcity areas are determined by the ratio
of specialty care physicians to Medicare beneficiaries.
i. Primary Care
Consistent with section 1833(u) of the Act, we would identify
eligible primary care scarcity counties by ranking each county by its
ratio of primary care physicians to Medicare beneficiaries. From the
list of primary care scarcity counties, only those counties with the
lowest primary care ratios that represent 20 percent of the total
number of Medicare beneficiaries residing in the counties will be
considered eligible for the 5 percent incentive payment. For
calculating the ratios, section 1833(u)(6) of the Act, as added by the
MMA, defines a primary care physician as a general practitioner, family
practice practitioner, general internist, obstetrician, or
gynecologist. All other physicians will be considered specialists for
purposes of the 5 percent incentive payment. Section 1833(u) of the
Act, as added by the MMA, specifically defines ``physician'' as one
described in section 1861(r)(1) of the Act. This statutory provision
does not include dentists, podiatrists, optometrists, and
chiropractors.
ii. Specialist Care
To identify eligible specialist care scarcity areas, we would rank
each county by its ratio of specialty physicians to Medicare
beneficiaries. From the list of specialist care scarcity counties, only
those counties with the lowest ratios that represent 20 percent of the
total number of Medicare beneficiaries residing in the counties will be
considered eligible for the 5 percent incentive payment.
iii. The Goldsmith Modification
For purposes of counties identified as having a shortage of primary
care or specialty care physicians, section 1833(u)(5) of the Act also
requires that, to the extent feasible, we treat a rural census tract of
a metropolitan statistical area (as determined under the most recent
modification of the Goldsmith Modification) as an equivalent area. The
Goldsmith modification evolved from an outreach grant program sponsored
by the Office of Rural Health Policy of HRSA. This program was created
to establish an operational definition of rural populations lacking
easy access to health services in Large Area Metropolitan Counties
(LAMCs). Dr. Harold F. Goldsmith and his associates created a
methodology for identifying rural census tracts located within a large
metropolitan county of at least 1,225 square miles. Using a combination
of data on population density and commuting patterns, census tracts
were identified as being so isolated by distance or physical features
that they are more rural than urban in character.
iv. Rural-Urban Commuting Area
The original Goldsmith Modification was developed using data from
the 1980 census. In order to more accurately reflect current
demographic and geographic characteristics of the nation, the Office of
Rural Health Policy, in partnership with the Department of
Agriculture's Economic Research

[[Page 47519]]

Service and the University of Washington, developed the Rural-Urban
Commuting Area codes (RUCAs). Rather than being limited to LAMCs, RUCAs
use urbanization, population density, and daily commuting data to
categorize every census tract in the country. RUCAs are the updated
version of the Goldsmith Modification and are used to identify rural
census tracts in all metropolitan counties.
Once all the full county PSAs are determined, we would identify,
consistent with section 1833(u)(4)(C)of the Act, eligible PSAs by their
5-digit zip code area for the purpose of automatically providing the 5
percent incentive payment to eligible physicians. The zip code of the
place of service is the only data element reported on the Medicare
claim form that would allow automation. For zip codes that cross county
boundaries, the statute specifically requires the use of the dominant
county of the postal zip code (as determined by the U.S. Postal
Service) if the Secretary uses the 5-digit postal zip code to identify
areas eligible to receive the 5 percent payment. The statute also
requires us to publish a list of eligible areas as part of the proposed
and final physician fee schedule rules for the years for which PSAs are
identified or revised and to post a list of PSAs on the CMS Website.
Lastly, the statute provides no administrative or judicial review under
sections 1869 or 1878 of the Act or otherwise, regarding the
identification of a county or area, the assignment of a specialty of
any physician, the assignment of a physician to a county, or the
assignment of a postal ZIP Code to a county or other area.
b. Improvement to Medicare HPSA Incentive Payment Program
In addition to the creation of the 5 percent PSA incentive payment,
section 413 of MMA amended section 1833(m) of the Act to mandate that
we automate payment of the 10 percent HPSA incentive payment to
eligible physicians for full county HPSAs without a requirement for the
physician to identify the HPSA involved. When automation is not
feasible, consistent with section 1833(m) of the Act as amended by
section 413(b) of MMA, we plan to post a list of HPSAs on our website.
When automation is not feasible, the billing of modifiers would still
be required.
The statute provides for no administrative or judicial review of
the identification of a county or area, the assignment of the
individual physician's specialty, the assignment of a physician to a
county or the assignment of a zip code to a county or area.
3. Provisions Related to Physician Scarcity Areas and HPSA Incentive
Payment Program
a. Determination of Physician Scarcity Areas
As the statute prescribes, PSAs for primary care would be
determined by the ratio of primary care physicians to the Medicare
beneficiaries residing in that county or area. A primary care physician
is defined by statute as a general practitioner, family practice
practitioner, general internist, obstetrician, or gynecologist. The
physician definition for determining primary care PSAs will be based on
HRSA's physician designations for primary medical care HPSAs, which
include all of the above physicians. In other words, the PSA definition
for primary care will be identical to HRSA's, except for pediatricians.
Furthermore, the statute provides that the primary care ratio include
only primary care doctors in the active practice of medicine.
Physicians whose practice is exclusively for the Federal Government or
who provide only administrative services would not be included in the
physician tally. PSAs for specialty care would be determined by the
ratio of physicians who are not primary care physicians to the Medicare
beneficiaries residing in that county or area. The specialist care PSA
ratio would include all physicians other than primary care physicians
as defined in the statute. To the extent feasible, we also plan to
include rural census tracts of metropolitan statistical areas (as
determined under the most recent modification of the Goldsmith
Modification), as identified at the zip code level, with sufficiently
low physician-to-Medicare population ratios as equivalent to qualified
full county scarcity areas. The calculation of physician scarcity
ratios is being made by the North Carolina Rural Research and Policy
Analysis Center using the most current Medicare beneficiary and
physician data available. At this time, the North Carolina Rural
Research and Policy Analysis Center can only determine physician
scarcity for Goldsmith areas at the zip code level due to the fact that
Medicare beneficiary data is currently unavailable at the census tract
level.
As previously discussed, section 1833(u) of the Act requires the
automation of incentive payments for all PSAs, which we can only
achieve by assigning zip codes to eligible areas. We propose the
identification of qualified PSAs by zip code for automatic payment as
follows:
For zip codes that fall within a full county PSA, the
bonus would be paid automatically.
For full county PSAs, the dominant county of the 5-digit
zip code, as determined by the U.S. Postal Service, would be used when
the zip code area is not entirely located within the county. In some
cases, a service may be provided in a county that is considered to be a
PSA, but the zip code is not considered to be dominant for that area,
which would not permit automation of the bonus payment. In order to
receive the bonus for those areas, physicians would need to include a
new physician scarcity modifier on the claim. We plan to establish and
implement the new modifier through the Medicare Claims Processing
Manual.
For partial county PSAs (Goldsmith Modification), all zip
code areas that are entirely located within the qualified Goldsmith
area and all zip code areas that are partially located within a
qualified Goldsmith area as long as the majority (51 percent) of the
population located within the zip code area resides in the qualified
Goldsmith area would be able to receive automatic payment.
Due to the complex nature of processing available physician and
Medicare beneficiary data into a usable format to identify counties and
areas with the lowest ratios, we cannot make available a list of PSAs
within this proposed rule. We are working closely with HRSA and its
contractors to publish these lists in the physician fee schedule final
rule.
b. Incentive Payments for Physician Scarcity Areas
Similar to the Medicare HPSA bonus payment program, eligibility for
receiving the 5 percent bonus payment would be based on whether the
specific location at which the service is furnished is within an area
that is designated as a PSA. Furthermore, the statute requires us to
restrict eligibility for receiving the incentive payments for
physicians' services furnished within primary care PSAs to general
practitioners, family practice practitioners, general internists,
obstetricians, or gynecologists. Also prescribed by statute, dentists,
podiatrists, optometrists, and chiropractors are not eligible to
receive incentive payments for PSAs. Section 1833(u) of the Act
specifically defines a physician as one described in section 1861(r)(1)
of the Act, which does not include dentists, podiatrists, optometrists,
and chiropractors.

[[Page 47520]]

To conform our regulations to the statute, we are proposing to add
Sec. 414.66 to provide a 5 percent incentive payment to eligible
physicians furnishing covered services in eligible PSAs. We propose to
add Sec. 414.66(a)(1) to specify that primary care physicians
furnishing services in primary care PSAs are entitled to an additional
5 percent incentive payment above the amount paid under the physician
fee schedule for their professional services furnished on or after
January 1, 2005, and before January 1, 2008. The new incentive payment
would apply to the professional services performed by physicians,
including evaluation and management, surgery, consultation, and home,
office and institutional visits. The technical component of physicians'
services is not eligible because this component is not included in the
definition of physicians' services at section 1861(q) of the Act as
applied by the MMA. We are also proposing to add Sec. 414.66(b) to
specify that physicians, other than primary care physicians, dentists,
podiatrists, optometrists, and chiropractors, furnishing services in
specialist care PSAs are entitled to an additional 5 percent payment
above the amount paid under the physician fee schedule for their
professional services furnished on or after January 1, 2005, and before
January 1, 2008.
c. Improvement to Medicare HPSA Incentive Payment Program
As of January 1, 2005, most physicians eligible for the 10 percent
HPSA incentive payment would no longer be required to determine whether
their service areas are eligible for incentive payments and to modify
their claims to receive those payments. The MMA requires us to automate
bonus payments for physicians' services furnished in full county HPSAs.
Automation of full county HPSA incentive payments involves the same
issues of automation as PSA incentive payments: the zip code of the
place of service is the only data element reported on the claim form
that would allow automation. Similarly, zip codes need to be cross-
walked to full county HPSAs. The statute allows use of the same method
of automation of incentive payments for full county HPSAs as for full
county PSAs. We are proposing the identification of HPSAs by zip code
for automatic payment as follows:
For zip codes that fall entirely within a full or partial
county HPSA, the bonus would be paid automatically.
When the zip code area is not entirely located within the
full county HPSA, only the dominant county of the 5-digit zip code as
determined by the U.S. Postal Service would be used for automatically
paying the HPSA incentive payment.
For all other zip code areas that are not entirely, but
are to some extent, located within a designated HPSA (full county or
partial), we would require physicians furnishing services in these
areas to bill for the incentive payments by using the appropriate
modifier on their Medicare claims. We propose to post on our website,
prior to January 1, 2005, a list of zip codes that fully fall within a
designated HPSA and a list of zip codes that partially fall within a
designated HPSA, so that physicians can determine whether they would
need to bill using a modifier.
Determination of zip codes eligible for automatic HPSA bonus
payment would be made on an annual basis, and there would not be any
mid-year updates. We would effectuate mid-year revisions made to
designations by HRSA the following year for automatic bonus payment
purposes.
d. Medicare HPSA Incentive Payments
The Medicare HPSA Incentive Payment program, which the Congress
established under OBRA 1987, was implemented through the Medicare
Claims Processing Manual. This proposed rule would create Sec. 414.67
to conform the regulations to the law, as amended by OBRA 1987 and
1989.
We propose in Sec. 414.67 to provide a 10 percent incentive
payment to eligible physicians furnishing covered services in eligible
HPSAs. Section 414.67(a) would specify that physicians, regardless of
specialty, furnishing services in a primary medical care HPSA are
entitled to a 10 percent incentive payment above the amount paid for
their professional services under the physician fee schedule. We would
also create Sec. 414.67(c) to specify that psychiatrists furnishing
services in a mental health HPSA are entitled to a 10 percent incentive
payment above the amount paid for their professional services under the
physician fee schedule. Psychiatrists furnishing services in mental
health HPSAs that do not overlap with primary care HPSAs are the only
physicians eligible to receive the 10 percent incentive payment in
those areas. In other words, these stand-alone mental health HPSAs are
eligible areas for psychiatrists only to receive incentive payments.

E. Section 303--Payment Reform for Covered Outpatient Drugs and
Biologicals

[If you choose to comment on issues in this section, please include the
caption ``Section 303'' at the beginning of your comments.]
1. Average Sales Price (ASP) Payment Methodology
a. Background
Medicare Part B covers a limited number of prescription drugs and
biologicals. For the purposes of this proposed rule, the term ``drugs''
will hereafter refer to both drugs and biologicals. Medicare Part B
covered drugs generally fall into the following three categories:
Drugs furnished incident to a physician's service.
Durable medical equipment (DME) drugs.
Drugs specifically covered by statute (for example,
immunosuppressive drugs).
Section 303(c) of the MMA revises the payment methodology for Part
B covered drugs that are not paid on a cost or prospective payment
basis. In particular, section 303(c) of the MMA amends Title XVIII of
the Act by adding section 1847A. Beginning in 2005, section 1847A of
the Act establishes a new ASP drug payment system. In 2005, almost all
Medicare Part B drugs not paid on a cost or prospective payment basis
will be paid under this system.
The new ASP drug payment system is based on data submitted to us
quarterly by manufacturers. For calendar quarters beginning on or after
January 1, 2004, the statute requires manufacturers to report their ASP
data to us for almost all Medicare Part B drugs not paid on a cost or
prospective payment basis. Manufacturers' submissions are due to us not
later than 30 days after the last day of each calendar quarter.
For further information on the submission of manufacturers' ASP
data, see the interim final rule titled ``Manufacturer Submission of
Manufacturer's Average Sales Price (ASP) Data for Medicare Part B Drugs
and Biologicals' published in the Federal Register on April 6, 2004 (69
FR 17935). It is accessible on the CMS Web site at http://www.cms.hhs.gov/
providers/drugs/default.asp.

The methodology for developing Medicare drug payment allowances
based on the manufacturer's submitted ASP data is described in this
proposed rule and reflected in proposed revisions to the regulations at
Sec. 405.517 and new Subpart K in part 414.
b. Provisions of the Proposed Rule
i. The ASP Methodology
Beginning in 2005, section 1847A of the Act establishes an ASP
payment system for certain drugs and biologicals

[[Page 47521]]

not paid on a cost or prospective payment basis furnished on or after
January 1, 2005. The most notable exceptions are described below in
sections III.E.1.c through III.E.1.e.
ii. Calculation of ASP
As described in section 1847A(b)(3)(A) of the Act for multiple
source drugs and section 1847A(b)(4)(A) for single source drugs, the
ASP for all drug products included within the same billing and payment
code [or HCPCS code] is the volume-weighted average of the
manufacturer's average sales prices reported to us across all the NDCs
assigned to the HCPCS code. Specifically, section 1847A(b)(3)(A) of the
Act and section 1847A(b)(4)(A) of the Act require that this amount be
determined by--
Computing the sum of the products (for each National Drug
Code assigned to those drug products) of the manufacturer's average
sales price and the total number of units sold; and
Dividing that sum by the sum of the total number of units
sold for all NDCs assigned to those drug products.
Note that in the following discussions, the term ``manufacturer's
ASP'' refers to the ASP data submitted to us by manufacturers at the
NDC level and the term ``ASP'' used in isolation refers to the weighted
average sales price for all drug products included within the HCPCS
[billing and payment] code.
Section 1847A(b)(5) of the Act requires that the ASP be determined
without regard to any special packaging, labeling, or identifiers on
the dosage form or product or package.
iii. Medicare Payment Allowances for Multiple Source Drugs
Section 1847A(b)(1)(A) of the Act requires that the Medicare
payment allowance for a multiple source drug included within the same
HCPCS code be equal to 106 percent of the ASP for the HCPCS code. This
payment allowance is subject to applicable deductible and coinsurance.
The payment limit is also subject to the two limitations described
below in section III.E.1.b.v of this preamble concerning widely
available market prices and average manufacturer prices in the Medicaid
drug rebate program. As described in section 1847A(e) of the Act, the
payment limit may also be adjusted in response to a public health
emergency under section 319 of the Public Health Service Act in which
there is a documented inability to access drugs and a concomitant
increase in the price of the drug which is not reflected in the
manufacturer's average sales price.
iv. Medicare Payment Allowances for Single Source Drugs
Section 1847A(b)(1)(B) of the Act requires that the Medicare
payment allowance for a single source drug HCPCS code be equal to the
lesser of 106 percent of the average sales price for the HCPCS code or
106 percent of the wholesale acquisition cost of the HCPCS code. This
payment allowance is subject to applicable deductible and coinsurance.
The payment limit is also subject to the two limitations described
below in section III.E.1.b.v concerning widely available market prices
and average manufacturer prices in the Medicaid drug rebate program. As
described in section 1847A(e) of the Act, the payment limit may also be
adjusted in response to a public health emergency under section 319 of
the Public Health Service Act.
It has been brought to our attention that some physicians have
concerns about their ability to purchase drugs at the Medicare payment
amount of 106 percent of the ASP as these physicians believe that they
are small purchasers of the Medicare Part B drugs subject to this
proposed rule and do not have access to the average discounts. It is
our understanding that many physicians are members of purchasing
groups, which do obtain discounts on drugs. We encourage physicians to
consider participating in such groups in order to achieve advantageous
prices. We are interested in comments regarding the extent to which
physicians can become members of such buying groups and the possible
effects of doing so.
v. Limitations on ASP
Section 1847A(d)(1) of the Act states that ``The Inspector General
of the Department of Health and Human Services shall conduct studies,
which may include surveys, to determine the widely available market
prices of drugs and biologicals to which this section applies, as the
Inspector General, in consultation with the Secretary, determines to be
appropriate.'' Section 1847A(d)(2) of the Act states that ``Based upon
such studies and other data for drugs and biologicals, the Inspector
General shall compare the average sales price under this section for
drugs and biologicals with--
The widely available market price for such drugs and
biologicals (if any); and
The average manufacturer price (as determined under
section 1927(k)(1)) for such drugs and biologicals.''
Section 1847A(d)(3) of the Act states that ``The Secretary may
disregard the average sales price for a drug or biological that exceeds
the widely available market price or the average manufacturer price for
such drug or biological by the applicable threshold percentage (as
defined in subparagraph (B)).'' Section 1847A(d)(3)(B) states that
``the term `applicable threshold percentage' means--
In 2005, in the case of an average sales price for a drug
or biological that exceeds widely available market price or the average
manufacturer price, 5 percent; and
In 2006 and subsequent years, the percentage applied under
this subparagraph subject to such adjustment as the Secretary may
specify for the widely available market price or the average
manufacturer price, or both.''
Section 1847A(d)(3)(C) of the Act states that ``If the Inspector
General finds that the average sales price for a drug or biological
exceeds such widely available market price or average manufacturer
price for such drug or biological by the applicable threshold
percentage, the Inspector General shall inform the Secretary (at such
times as the Secretary may specify to carry out this subparagraph) and
the Secretary shall, effective as of the next quarter, substitute for
the amount of payment otherwise determined under this section for such
drug or biological the lesser of--
The widely available market price for the drug or
biological (if any); or
103 percent of the average manufacturer price (as
determined under section 1927(k)(1)) for the drug or biological.''
vi. Payment Methodology in Cases Where the Average Sales Price During
the First Quarter of Sales Is Unavailable
Section 1847A(c)(4) of the Act states that ``In the case of a drug
or biological during an initial period (not to exceed a full calendar
quarter) in which data on the prices for sales for the drug or
biological is not sufficiently available from the manufacturer to
compute an average sales price for the drug or biological, the
Secretary may determine the amount payable under this section for the
drug or biological based on--
The wholesale acquisition cost; or
The methodologies in effect under this part on November 1,
2003, to determine payment amounts for drugs or biologicals.''

[[Page 47522]]

c. Payment for Influenza, Pneumococcal, and Hepatitis B Vaccines
Section 1841(o)(1)(A)(iv) of the Act requires that influenza,
pneumococcal, and hepatitis B vaccines described in subparagraph (A) or
(B) of section 1861(s)(10) of the Act be paid based on 95 percent of
the average wholesale price (AWP) of the drug. These AWP payments,
which will be updated quarterly, have not been revised by the ASP
provisions.
d. Payment for Drugs Furnished During 2005 in Connection With the
Furnishing of Renal Dialysis Services if Separately Billed by Renal
Dialysis Facilities.
Section 1881(b)(13)(A)(ii) of the Act indicates that payment for a
drug furnished during 2005 in connection with the furnishing of renal
dialysis services, if separately billed by renal dialysis facilities,
will be based on the acquisition cost of the drug as determined by the
Inspector General (IG) report to the Secretary required by section
623(c) of the MMA or, insofar as the IG has not determined the
acquisition cost with respect to a drug, the Secretary shall determine
the payment amount for the drug. In the report, ``Medicare
Reimbursement for Existing End-Stage Renal Disease Drugs,'' the IG
found that, on average, in 2003 the four largest chains had drug
acquisition costs that were 6 percent lower than the ASP of 10 of the
top drugs, including erythropoietin. A sample of the remaining
independent facilities had acquisition costs that were 4 percent above
the ASP. Based on this information, the overall weighted average drug
acquisition cost for renal dialysis facilities is 3 percent lower than
the ASP. Therefore, payment for a drug or biological furnished during
2005 in connection with renal dialysis services and separately billed
by renal dialysis facilities will be based on the ASP of the drug minus
3 percent. This will be updated quarterly based on the ASP reported to
us by drug manufacturers.
e. Payment for Infusion Drugs Furnished Through an Item of DME
In 2005, section 1841(o)(1)(D)(i) of the Act requires an infusion
drug furnished through an item of DME covered under section 1861(n) of
the Act be paid 95 percent of the average wholesale price for that drug
in effect on October 1, 2003.
2. Provisions for Appropriate Reporting and Billing for Physicians'
Services Associated With the Administration of Covered Outpatient Drugs
Section 1848(c)(2)(J) of the Act (as added by section 303(a) of the
MMA) requires the Secretary to promptly evaluate existing drug
administration codes for physicians' services to ensure accurate
reporting and billing for those services, taking into account levels of
complexity of the administration and resource consumption. According to
section 1848(c)(2)(B)(iv) of the Act (also as amended by section 303(a)
of the MMA), any changes in expenditures in 2005 or 2006 resulting from
this review are exempt from the budget neutrality requirement of
section 1848(c)(2)(B)(ii) of the Act. The statute further indicates
that the Secretary shall use existing processes for the consideration
of coding changes and, to the extent changes are made, shall use those
processes to establish relative values for those services. The
Secretary is also required to consult with physician specialties
affected by the provisions that change Medicare payments for drugs and
drug administration.
In the January 7, 2004 interim final rule with comment (69 FR
1094), we indicated that the Physicians Regulatory Issues Team (PRIT)
will review Medicare payment policy for drug administration and that we
plan to consult with the AMA's CPT Editorial Panel and physician
specialties affected by changes in payment for drugs and drug
administration. We requested that the CPT Editorial Panel review all
codes related to the administration of drugs and consider whether any
revisions or additional codes are needed. At its February 2004 meeting,
the CPT Editorial Panel established a workgroup, with representatives
from affected specialties, to make recommendations on drug
administration coding to the full Panel. In addition, the workgroup
will be reviewing issues related to drug administration that were
identified in the public comments on the January 7, 2004 Physician Fee
Schedule rule. These comments raised the following two major issues:
1. Can the current coding distinction between chemotherapy and
nonchemotherapy infusions allow for recognition of the resources needed
to administer drugs with high toxicity or potential for serious side
effects for diagnoses other than cancer? If not, are code revisions or
new codes needed?
2. Does the current coding for chemotherapy administration capture
all the support services provided by oncology practices for
chemotherapy patients? If not, are code revisions or new codes such as
a cancer management code needed?
There were also a number of specific comments on individual codes
raised by some specialties such as urology and ophthalmology. On June
21, 2004, the workgroup held a public meeting to receive input and
comments about drug administration code changes under consideration.
The workgroup is expected to report to the full CPT Editorial Panel on
all these issues at its August 2004 meeting. Once we review the CPT
Editorial Panel's work on this issue, we will consider whether it is
necessary for us to make coding changes effective January 1, 2005
through the use of G codes, since the 2005 CPT book will already have
been published. While the CPT Editorial Panel's work on this issue is
important to us, we finally determine coding policy for Medicare; we
also would welcome public comments on these issues. We would also
welcome comments concerning any alternative methods of allocating
practice expenses to the drug administration codes. (See section
II.A.2. of this proposed rule for a discussion of allocation of
practice expenses.) If coding changes are to be made for next year, we
would announce them in the physician fee schedule final rule effective
January 1, 2005.
We also plan to analyze any shift or change in utilization patterns
once the payment changes for drugs and drug administration required by
MMA go into effect. While we do not believe the changes will result in
access problems, we plan to continue studying this issue. We also note
that the MMA requires the Medicare Payment Advisory Commission (MedPAC)
to study items and services furnished by oncologists and drug
administration services furnished by other specialties.
3. Blood Clotting Factor--Section 303(e)(1)--Items and Services
Relating to Furnishing of Blood Clotting Factors
For clotting factors furnished on or after January 1, 2005, we
propose to establish a separate payment of $0.05 per unit to hemophilia
treatment centers and homecare companies for the items and services
associated with the furnishing of blood clotting factor.
Section 303(e)(1) of the MMA requires the Secretary, after review
of the January 2003 report to the Congress by the Comptroller General
of the United States, to establish a separate payment to hemophilia
treatment centers and homecare companies for the items and services
associated with the furnishing of blood clotting factor. In the
proposed rule, Payment Reform for Part B Drugs

[[Page 47523]]

(68 FR 50440), published in the Federal Register on August 20, 2003, we
indicated that we are proposing to create a payment of $0.05 per unit
of clotting factor provided to Medicare beneficiaries by hemophilia
treatment centers and homecare companies to appropriately pay for the
administrative costs associated with furnishing the clotting factor. We
did not propose the creation of separate payment for furnishing the
clotting factor for individuals or entities other than hemophilia
treatment centers and homecare companies.
We received comments from hemophilia organizations and specialty
pharmacy providers of blood clotting factor. Most comments questioned
our position to create a separate payment of $0.05 per unit, stating
that this amount would jeopardize the ability of these facilities to
adequately supply the clotting factor. Commenters were concerned that
the $0.05 amount was too low and would cause many entities to
discontinue providing the clotting factors and severely impact
beneficiaries' access to clotting factor.
Based on a review of the General Accounting Office (GAO) report and
data received from various clotting factor providers, we believe a
separate payment amount of $0.05 per unit would cover the
administrative costs associated with supplying the clotting factor. As
outlined in the MMA, any separate payment amount established may
include the mixing and delivery of factors, including special inventory
management and storage requirements, as well as ancillary supplies and
patient training necessary for the self-administration of these
factors. The MMA states that, in determining the separate payment, the
total amount of payments and these separate payments shall not exceed
the total amount of payments that would have been made for the factors
if the amendments in section 303 of the MMA had not been enacted. As
indicated in the GAO report, ``[w]hen Medicare's payment for clotting
factor more closely reflects acquisition costs, we recommend that the
Administrator establish a separate payment for providers based on the
costs of delivering clotting factor to Medicare beneficiaries.
Effective January 1, 2005, payment for blood clotting factors will more
closely reflect acquisition costs as payment will be based on the
average sales price as reported by drug manufacturers plus 6 percent.''
Therefore, in the absence of additional data, we believe that a
separate payment amount of $0.05 per unit for the cost of delivering
clotting factor is an appropriate amount beginning CY 2005 and we are
proposing revisions to Sec. 410.63 to reflect this amount. However, we
are also seeking updated data and comments on the GAO report, as well
as information on the fixed and variable costs of furnishing clotting
factor. We recognize that there may be alternatives to a fee, which
varies entirely based on the number of units of clotting factor
furnished. We will closely examine all data and information submitted
in order to make a final determination with respect to the
appropriateness of the $0.05 per unit amount. That information will
enable us to effectively determine the appropriateness of the $0.05 per
unit amount.
4. Supplying Fee
Section 1842(o)(6) of the Act, as added by section 303(e)(2) of the
MMA, requires the Secretary to pay a supplying fee (less applicable
deductible and coinsurance) to pharmacies for certain Medicare Part B
drugs and biologicals, as determined appropriate by the Secretary. The
types of Medicare Part B drugs and biologicals eligible for a supplying
fee are immunosuppressive drugs described in section 1861(s)(2)(J) of
the Act, oral anticancer chemotherapeutic drugs described in section
1861(s)(2)(Q) of the Act, and oral anti-emetic drugs used as part of an
anticancer chemotherapeutic regimen described in section 1861(s)(2)(T)
of the Act. As discussed in the interim final rule published on January
7, 2004 (69 FR 1084), we considered this fee to be bundled into the
current payment for these drugs for 2004 where payment is based on the
Average Wholesale Price (AWP).
We propose to establish a separately billable supplying fee,
effective January 1, 2005, when Medicare implements a different payment
system for these drugs. We believe that a separately billable supplying
fee of $10 per prescription is an appropriate level, beginning CY 2005.
We received data suggesting various amounts for the supplying fee.
Retail chain pharmacies suggested a supplying fee of $12 to $15 per
prescription. These pharmacies stated that on average it cost between
$10 to $12 to dispense a prescription to a Medicare beneficiary.
However, when supplying immunosuppressive and oral anti-cancer drugs to
Medicare beneficiaries, they argued that costs increase due to factors
such as coordination of benefits activities. The specialty pharmacies
that exclusively or largely furnish immunosuppressive drugs submitted
data indicating that they believe a supplying fee of $44 (weighted
average) to $56 (unweighted average) was appropriate. Pharmacies have
pointed to the additional Medicare billing requirements as additional
costs they had to incur, in the form of extra staff and time required
to fulfill the billing requirements. We believe that a supplying fee of
$10 per prescription is appropriate, especially when combined with the
savings the pharmacy will experience with the clarification and
elimination of the billing and shipping requirements, as described
below.
We point out that if we were to establish a supplying fee of $44,
then we expect that Medicare would be spending more money in 2005 on
the supplying fees and immunosuppressive drugs than Medicare would have
paid for immunosuppressive drugs in 2005 under the former system at 95
percent of AWP, when the supplying fee was bundled into payment for the
drug.
Our goal is to assure that each beneficiary who needs covered oral
drugs has access to those medications. We seek comments about the
appropriateness of our proposed supplying fee amount as well as the
components of a supplying fee that would assure beneficiary access to
oral drugs. We believe that a supplying fee is intended to cover a
pharmacy's activities to get oral drugs to beneficiaries. We seek data
and information on the additional services these pharmacies provide to
Medicare beneficiaries, the extent to which oral drugs can be furnished
without these additional services and the extent to which such services
are covered under Medicare. We seek comment about whether the supplying
fee should be somewhat higher during the initial month following a
Medicare beneficiary's transplant to the extent that additional
resources are required for example, due to more frequent changes in
prescriptions for immunosuppressive drugs.
5. Billing Requirements
We propose to clarify or eliminate the following billing
requirements in an effort to reduce a pharmacy's costs of supplying
covered immunosuppressive and oral drugs to Medicare beneficiaries:
Original signed order. We wish to clarify Medicare's
policy regarding the necessity of an original signed order prior to the
filling of a prescription. According to the Medicare Program Integrity
Manual (section 5.1 of Chapter 5), which addresses the ordering
requirement for durable medical equipment, prosthetics, orthotics and
supplies (DMEPOS), including drugs, most DMEPOS items can be dispensed

[[Page 47524]]

based on a verbal order from a physician. A written order must be
obtained before submitting a claim, but that written order may be
faxed, photocopied, electronic, or pen and ink. The order for the drug
must specify the name of the drug, the concentration (if applicable),
the dosage, and the frequency of administration. We hope that
clarification of this requirement would reduce a pharmacy's costs of
supplying covered immunosuppressive and oral drugs to Medicare
beneficiaries to the extent that pharmacies are currently applying an
original signed prescription requirement.
Assignment of Benefits Form. Currently, pharmacies must
obtain a completed Assignment of Benefits form in order to receive
payment from Medicare. Other payors do not impose this requirement.
This requirement increases a pharmacy's cost of supplying covered drugs
to Medicare beneficiaries. Section 1842(o)(3) of the Act requires that
payment for drugs under Part B of Medicare can only be made on an
assignment related basis. However, Sec. 424.55(a) implies that if a
beneficiary does not sign an assignment of benefits form, then Medicare
will not make payment to the supplier. It has been pointed out that
this requirement increases costs to suppliers that are not reimbursed
by Medicare. We believe that it is not necessary for an assignment of
benefit form to be filled out for drugs covered under Part B since
payment for them can only be made on an assignment-related basis. We
propose to eliminate use of the Assignment of Benefits form for Part B
covered oral drugs as a means of reducing a pharmacy's costs of
supplying such drugs to Medicare beneficiaries. (Additional discussion
on assignment of Medicare claims is in section IV.G of this preamble.)
DMERC Information Form (DIF). The DIF is a form created by
the DMERC Medical Directors that contains information regarding the
dates of the beneficiary's transplant and other diagnosis information.
Pharmacies must have a completed DIF in order to receive payment. This
requirement increases a pharmacy's cost of supplying covered drugs to
Medicare beneficiaries. The DIF is a one-time requirement that was
established to facilitate implementation of the immunosuppressive drug
benefit when Medicare covered the drugs for different periods of time
to distinguish between transplant and non-transplant uses for
immunosuppressive drugs. Since section 1861(s)(2)(J) of the Act no
longer imposes limits on the period of time for coverage of
immunosuppressive drugs, we believe that the information on transplant
diagnosis can be captured through other means (for example, diagnosis
codes on the Part B claim form). In light of this statutory revision,
we have had discussions with the DMERCs about their elimination of the
use of this form when billing DMERC drugs. The DMERCs plan to eliminate
the use of this form effective October 1, 2004. We believe that a
pharmacy's costs of supplying Part B covered oral drugs to Medicare
beneficiaries would be reduced with this change.
6. Shipping Time Frame
It has been suggested that Medicare guidelines for refill
prescriptions allowed too short of a window between shipping the next
month's prescription and the end of the current month. It has been
argued that, as a result, a pharmacy ``effectively'' had to ship the
product to a beneficiary using an overnight delivery service.
As indicated in section III.N of this preamble, on January 2, 2004,
we revised the guidelines (effective February 2, 2004) regarding the
time frame for subsequent deliveries of refills of DMEPOS products to
occur no sooner than ``approximately 5 days prior to the end of the
usage for the current product'' (see section 4.26.1 of Chapter 4--
Benefit Integrity of the Medicare Program Integrity Manual). This
change allows shipping of refills on ``approximately'' the 25th day of
the month in the case of a month's supply. We emphasize the word
``approximately'; while we believe that normal ground service shipping
would allow delivery in 5 days, if there were circumstances where
ground service could not occur in 5 days, the guideline would still be
met if the shipment occurs in 6 or 7 days. (``Days'' refers to business
days or shipping days applicable to the shipper, that is, a 6-day week
in the case of the U.S. Postal Service.) We believe that this change
eliminates the need for suppliers to use overnight shipping methods and
allows shipping of drugs by less expensive ground service.

F. Section 952--Revisions to Reassignment Provisions--Section 952 of
the MMA

[If you choose to comment on issues in this section, please include the
caption ``Section 952'' at the beginning of your comments.]
Section 1842(b)(6) of the Act requires that payment may only be
made to the physician or other person who furnished a service, or to
the beneficiary for whom services were furnished, unless certain
specified exceptions are met. Prior to the enactment of section 952 of
the MMA, Medicare did not permit the reassignment of payments for
services provided by an independent contractor physician or
nonphysician practitioner unless the services were performed on the
premises of the facility or health care delivery system that submitted
the bill. Therefore, if the services were furnished offsite,
reassignment was prohibited (see section 1842(b)(6)(A)(ii) of the Act).
Section 1842(b)(6)(A)(ii) of the Act, as amended by section 952 of
the MMA, allows a physician or nonphysician practitioner to reassign
payment for Medicare-covered services, regardless of the site of
service, as long as there is a contractual arrangement between the
physician and nonphysician practitioner and the entity through which
the entity submits the bill for those services. Thus, the services may
be provided on or off the premises of the entity receiving the
reassigned payments. The MMA Conference Agreement states that entities
that retain independent contractors may enroll in the Medicare program.
We note that the expanded exception created by section 952 applies to
those situations when an entity seeks to obtain the medical services of
a physician or nonphysician practitioner.
Section 952 states that reassignment is permissible if the
contractual arrangement between the entity that submits the bill for
the service and the physician or nonphysician practitioner who performs
the service ``meets such program integrity and other safeguards as the
Secretary may determine to be appropriate.'' The Conference Agreement
supports appropriate program integrity efforts for entities with
independent contractors that bill the Medicare program, including joint
and several liability (that is, both the entity accepting reassignment
and the physician or nonphysician practitioner providing a service are
both liable for any Medicare overpayments). The Conference Agreement
also recommends that physician or nonphysician practitioners have
unrestricted access to the billings submitted on their behalf by
entities with which they contract. We incorporated these recommended
safeguards in a change to the Medicare Manual, implementing section 952
of the MMA that was published on February 27, 2004. We are proposing to
revise Sec. 424.71 and Sec. 424.80 to reflect these safeguards, as
well as the expanded exception established by section 952.
Given the myriad relationships and financial arrangements
potentially permitted by section 952, the purpose of

[[Page 47525]]

joint and several liability is to encourage both parties to the
contractual arrangement to exercise oversight of billings submitted to
the Medicare program by holding them each fully accountable. Since
physician or nonphysician practitioners will be subject to liability
for claims that are submitted to the Medicare program by entities to
which they have reassigned payments, it follows that a physician or
nonphysician practitioners should have access to the billings submitted
on their behalf.
We note that section 952 of the MMA revises only the statutory
reassignment exceptions relevant to services provided in facilities and
clinics (section 1842(b)(6)(A)(ii) of the Act). Arrangements involving
reassignment must not violate any other applicable Medicare laws or
regulations governing billing or claims submission, including, but not
limited to, those regarding ``incident to'' services, payment for
purchased diagnostic tests, and payment for purchased test
interpretations.
In addition, physician group practices should be mindful that
compliance with the in-office ancillary services exception to the
physician self-referral prohibition requires that a physician who is
engaged by a group practice on an independent contractor basis must
provide services to the group practice's patients in the group's
facilities. As noted in the Phase I physician self-referral final rule
(66 FR 887), ``[w]e consider an independent contractor physician to be
``in the group practice'' if (1) he or she has a contractual
arrangement to provide services to the group's patients in the group
practice's facilities, (2) the contract contains compensation terms
that are the same as those that apply to group members under section
1877(h)(4)(iv) of the Act or the contract fits in the personal services
exception, and (3) the contract complies with the reassignment rules *
* * .'' See also 66 FR 886. This test is codified at Sec. 411.351 in
the definition of ``physician in the group practice.''
We are aware that the changes in the reassignment rules based on
section 952 of the MMA may create new fraud and abuse vulnerabilities,
which may not become apparent until the program has experience with the
new contractual arrangements addressed in section 952 of the MMA.
Parties should be mindful that contractual arrangements involving
reassignment may not be used to camouflage inappropriate fee-splitting
arrangements or payments for referrals. We are soliciting public
comment on potential program vulnerabilities and on possible additional
program integrity safeguards to guard against such vulnerabilities. We
intend to monitor reassignment arrangements for potential program
abuse.

G. Section 642--Extension of Coverage of IVIG for the Treatment of
Primary Immune Deficiency Diseases in the Home

[If you choose to comment on issues in this section, please include the
caption ``Section 642'' at the beginning of your comments.]

Beginning for dates of service on or after January 1, 2004,
Medicare pays for intravenous immune globulin administered in the home.
This benefit is for the drug and not for the items or services related
to the administration of the drug when administered in the home, if
deemed medically appropriate. Manual instructions implementing this MMA
provision have been issued and can be found at http://www.cms.hhs.gov/manuals/pm_trans/R6BP.pdf and http://www.cms.hhs.gov/manuals/pm_trans/R74CP.pdf.
We are also proposing to revise Sec. 410.10 to

address this statutory change.

H. Section 623--Payment for Renal Dialysis Services

[If you choose to comment on issues in this section, please include the
caption ``Section 623'' at the beginning of your comments.]
1. Background
We are proposing changes affecting payments to ESRD facilities that
result from enactment of the MMA and would be effective January 1,
2005. Section 1881(b) of the Act, as amended by section 623 of the MMA,
directed the Secretary to revise the current composite rate payment
system. The statute has several major provisions that require the
development of revised composite payment rates, as follows:
An update of 1.6 percent.
An add-on to the composite rate for the difference between
current payments for separately billable drugs and biologicals and
payments based on the revised drug pricing methodology using
acquisition costs.
Case-mix adjustments for a limited number of patient
characteristics.
Application of a budget neutrality adjustment. The statute
also allows the Secretary to adjust the payment rates by a geographic
index as the Secretary determines to be appropriate which would be
phased-in over a multiyear period.
By January 1, 2005, we plan to implement the proposed revisions
affecting the composite payment rate which would include the following:
An increase of 1.6 percent to the basic composite payment
rate.
Proposed revisions to the pricing of separately billable
drugs and biologicals.
A drug add-on to the composite rate to reflect the
difference between current payments for separately billable drugs and
biologicals, and payment based on the revised drug pricing methodology
using acquisition costs.
We propose to implement the patient characteristics adjustments and
the related budget neutrality adjustments by April 1, 2005. (See
detailed discussion later in this section.)
2. Legislative History
Section 2991 of the Social Security Amendments of 1972 (Pub. L. 92-
603), established Medicare's End Stage Renal Disease (ESRD) Program.
This law extended Medicare coverage to individuals who have permanent
kidney failure, require either dialysis or transplantation, and meet
certain other eligibility requirements. The End Stage Renal Disease
Program Amendments of 1978 (Pub. L. 95-292) added section 1881(b)(2)(B)
to title XVIII of the Act.
That legislation provided for the establishment of a prospective
reimbursement methodology for the payment of dialysis treatments
provided by renal dialysis facilities. Further changes to the ESRD
payment system were made by section 2145 of Pub. L. 97-35, which
amended section 1881 of the Act, requiring the development of a
prospective reimbursement system for outpatient maintenance dialysis
that promotes home dialysis. The payment system required either the
reimbursement of home dialysis and in-facility dialysis under
``composite'' rates, or the use of some other more efficient method
determined to promote home dialysis more effectively.
On February 12, 1982, we published a proposed rule on reimbursement
for outpatient maintenance dialysis services (47 FR 6556) and we
published the final rule on May 13, 1983 (48 FR 21254). This regulation
implemented section 1881 of the Act, as amended by section 2145 of Pub.
L. 97-35, and provided that each ESRD facility will receive a fixed
composite payment rate per dialysis treatment, adjusted for geographic
differences in area wage levels. Payment for in-facility and home
dialysis treatments was established using a composite payment rate
reflecting the costs of both modalities. Separate composite payment
rates were established for hospital-based and independent dialysis
facilities. The regulation also included a process under which
facilities could obtain exceptions

[[Page 47526]]

to their composite payment rates under specified circumstances.
The average composite payment rate per treatment, effective on
August 1, 1983, was $123 for independent ESRD facilities and $127 for
hospital-based facilities. The composite rate was designed to provide
payment for a package of goods and services needed to furnish dialysis
treatments that included certain routinely provided drugs, laboratory
tests, supplies, and equipment. Unless specifically included in the
composite payment rate, other injectable drugs and laboratory tests
medically necessary for the care of the dialysis patient are separately
billable.
Prior to January 1, 2004, drugs not paid on a cost or prospective
payment basis were paid based on the lower of the actual charge or 95
percent of the AWP (section 1842(o)(1) of the Act, as added by section
4556 of the BBA of 1997 (Pub. L. 105-33)). Sections 303 through 305 of
the MMA make revisions to payment methodology for Part B covered drugs
that are not paid on a cost or prospective payment basis. For CY 2004,
the MMA provides that drugs not paid on a cost or prospective payment
basis will be paid at 85 percent of the AWP determined as of April 1,
2003. However, there are several exceptions to this general rule,
including payment of ESRD drugs and biologicals. In CY 2004, drugs and
biologicals furnished in connection with the furnishing of renal
dialysis services if separately billed by renal dialysis facilities are
paid at 95 percent of AWP. We note that hospital-based ESRD facilities
are paid reasonable costs for separately billable drugs, except for
Erythropoietin/Epoietin (EPO).
EPO is an anti-anemia drug administered to certain patients with
ESRD. Medicare Part B pays for EPO and its administration if it is
furnished by an approved ESRD facility as part of an outpatient
dialysis service or by a supplier of home dialysis equipment and
supplies to ESRD patients in their homes as part of home dialysis
services. Most dialysis is furnished to ESRD patients on an outpatient
basis or is self-administered in the home.
Section 1881(b)(11) of the Act expressly excludes payment for EPO
furnished to ESRD patients from the composite rate for dialysis
services. The costs of EPO are, therefore, billed separately by an ESRD
facility or by a supplier of home dialysis equipment and supplies and
are paid in addition to the facility's composite rate. Any EPO-related
costs, such as the cost of its administration or overhead costs
associated with its storage, however, are subsumed in the facility's
composite rate.
Section 413.174(f)(3) requires that we prospectively determine the
EPO amount pursuant to section 1881(b)(11)(B)(ii) of the Act. Section
4201(c) of the Omnibus Budget Reconciliation Act of 1990 (OBRA 90)
(Pub. L. 101-508), however, amended section 1881(b)(11) of the Act to
establish a new EPO payment methodology. OBRA 90 directed, effective
January 1, 1991, that payment for EPO furnished to ESRD patients by
Medicare-approved dialysis facilities or suppliers of home dialysis
equipment and supplies for home use be made on a per-unit basis. OBRA
90 also established a maximum payment amount of $11 per 1,000 unit
doses rounded to the nearest 100 units. Subsequently, section
13556(a)(2) of OBRA 93 was enacted, which further amended section
1881(11)(b)(B)(ii) of the Act to reduce the maximum payment level to
$10 per 1,000 units effective January 1, 1994. Although we have the
authority to revise the rate, we continue to pay at the rate of $10 per
1,000 units.
Section 9335(a) of Pub. L. 99-509 required the Secretary to reduce
the initially established composite payment rates by $2.00 per
treatment effective October 1, 1986. This reduction was partially
reversed as a result of the enactment of section 4201(a)(2) of Pub. L.
101-508, which increased the composite payment rates in effect as of
September 30, 1990 by $1.00 per treatment, but effectively froze the
methodology for their calculation, including the data and definitions
used, as of that date. Section 222 of Pub. L. 106-113, provided for a
1.2 percent increase to the payment rates effective January 1, 2000,
and also provided for another 1.2 percent increase effective January 1,
2001. Section 422(a)(1) of Pub. L. 106-554, raised the amount of the
January 1, 2001 payment increase by another 1.2 percent for a total
increase of 2.4 percent effective January 1, 2001.
Section 422 of Pub. L. 106-554 also directed the Secretary to
develop a Prospective Payment System (PPS) that expanded the bundle of
routine services reflected in the composite rate to include separately
billable laboratory tests and drugs ``to the maximum extent feasible''.
In addition, section 422(a) of Pub. L. 106-554 prohibited the granting
of new composite rate payment exceptions for services furnished after
December 31, 2000. Because a bundled ESRD payment system must be
periodically updated, section 422(b) of Pub. L. 106-554 also required
the development of an ESRD market basket to account for changes in
price inflation, with discretionary consideration of other factors
known to affect costs. Section 422(c) of Pub. L. 106-554 mandated the
submission of a report to the Congress on the bundled payment system
and ESRD market basket.
On May 12, 2003, the Secretary submitted the required report to the
Congress. The report explained the major issues that must be addressed
before a bundled ESRD PPS can be implemented, presented an ESRD
composite rate market basket, and discussed the results from the first
phase of our sponsored research to develop a bundled payment system.
The report presented the following three major findings that are
relevant to our efforts to revise the composite rate payment system:
Current data sources are adequate for proceeding to
develop a bundled ESRD PPS.
Case-mix may be an important variable for risk adjusting
payments, based on preliminary analysis.
Current data provide a sound basis for monitoring patient
outcomes in a revised ESRD payment system.
3. Summary of Section 623 of MMA
The following provisions in section 623 of the MMA, effective
January 1, 2005, affect the composite payment rate methodology, as well
as the pricing methodology for separately billable drugs and
biologicals furnished by ESRD facilities:
a. Section 623(a)--The last sentence of section 1881(b)(7) of the
Act, as amended by MMA, provides for an increase in the current
composite payment rate of 1.6 percent.
b. Section 623(d)(1)--Section 1881(b)(13) of the Act, as added by
MMA section 623(d)(1), provides for a revision to the current AWP
pricing of separately billable drugs and biologicals; payment will be
based on acquisition costs as determined by the OIG's study mandated
under section 623(c) of the MMA. Insofar, as the OIG has not determined
the acquisition costs, with respect to a drug or biological, the
Secretary shall determine the payment amount for such drug or
biological.
c. Section 623(d)(1)--Section 1881(b)(12) of the Act, as added by
MMA section 623(d)(1), also requires the establishment of a basic case-
mix adjusted composite payment rate that applies certain adjustments to
the composite payment rate as follows:
Adjustments for a limited number of patient
characteristics.
An adjustment that reflects the difference between current
payments for

[[Page 47527]]

separately billed drugs and biologicals and the revised pricing based
on acquisition costs or other method as determined by the Secretary.
A geographic adjustment, if the Secretary determines such
an adjustment is appropriate with the possibility of a phase-in.
A budget neutrality adjustment, so that aggregate payments
under the basic case-mix adjusted composite payment rates for 2005
equal the aggregate payments that would have been made for the same
period if section 1881(b)(12) of the Act did not apply.
4. Provisions of the Proposed Rule
a. Composite Rate Increase
The current composite payment rates applicable to urban and rural
hospital-based and independent ESRD facilities were effective January
1, 2002. The current wage-adjusted rates for each urban and rural area
were published in Tables III and IV of Program Memorandum A-01-19
issued February 1, 2001 and are applicable through the end of 2004.
Section 623(a)(3) of the MMA requires that the composite rates in
effect on December 31, 2004 be increased by 1.6 percent. We are
publishing revised wage-adjusted composite rates that reflect the
statutorily required 1.6 percent increase. Those rates are set forth in
Tables I and II at the end of this section. These tables reflect the
updated hospital-based and independent facility composite rate of
$132.40 and $128.35, respectively, adjusted by the current wage index.
The rates will be effective January 1, 2005. The rates shown in the
tables do not include any of the basic case-mix adjustments required
under section 623 of the MMA.
b. Revised Pricing Methodology for Separately Billable Drugs and
Biologicals Furnished by ESRD Facilities
Section 623(d) of the MMA requires the Secretary to establish a
basic case-mix adjusted PPS for dialysis services that are furnished
beginning on January 1, 2005 by providers of services and renal
dialysis facilities to individuals in a facility and to individuals at
home. This system will include services comprising the composite rate
as well as the difference between payment amounts for separately billed
drugs and biologicals (including erythropoietin) furnished by ESRD
facilities and acquisition costs of such drugs and biologicals as
determined by the OIG reports from the studies mandated by section
623(c) of the MMA.
For 2004, the payment amounts for separately billed drugs and
biologicals (other than erythropoietin) furnished by ESRD facilities
are determined by 95 percent of AWP. For 2005, the payment amounts for
separately billed drugs and biologicals (including erythropoietin)
furnished by ESRD facilities are described in section III.E of the
NRPM. Insofar as the acquisition cost has not been determined by the
OIG, then the Secretary shall determine the payment amount of the drug
and biological.
For 2005 and subsequent years, the payment amounts for separately
billed drugs and biologicals (including erythropoietin) furnished by
ESRD facilities will be the acquisition cost or the amount that is
derived from the ASP methodology in section 1847A of the Act, as the
Secretary may specify.
See section III.E.1.d. of this proposed rule for further
explanation of payment for separately billable drugs and biologicals
furnished by renal dialysis facilities.
c. Composite Rate Adjustment to Account for Changes in Pricing of
Separately Billable Drugs and Biologicals
Section 1881(b)(12) of the Act, as added by section 623(d) of the
MMA, contains two provisions that specify how the drug add-on
adjustment is to be handled in the revised ESRD payment system. First,
subparagraph (B)(ii) of such section requires an adjustment to the
composite payment rates to account for the difference between payment
amounts for separately billed drugs (including erythropoietin) under
the current payment system and acquisition costs as determined by the
OIG. Second, subparagraph (E)(i) requires that the drug add-on
adjustment be budget-neutral, that is, that it be designed to result in
the same aggregate amount of expenditures as would have been made
without the statutory policy change.
We need to determine the composite rate adjustment for drug add-on
amount that simultaneously deals with both statutory requirements. That
is, the aggregate amount of the composite rate adjustment for drug add-
on amount needs to equal the aggregate amount of the drug spread (the
difference between drug payments under the old system and acquisition
costs).
In order to ensure that we satisfy both constraints, it is
necessary to consider the proposed drug pricing in developing the
adjustment to the composite rates. As discussed in section III.E.1.d.
of this proposed rule, we are proposing to pay for separately billable
ESRD drugs using ASP minus 3 percent based on the average relationship
of acquisition costs to average sales prices from the drug
manufacturers as outlined in the OIG report. We have developed the
proposed drug add-on adjustment using the ASP minus 3 percent drug
prices. Section 2 below discusses the details of the calculation of the
drug add-on adjustment. An alternative approach would be to use the
2003 acquisition prices from the OIG report, calculate the aggregate
difference between such prices and payments for drugs under the AWP
system, update this difference to 2005 and then apply the budget
neutrality adjustment. Because the same budget-neutrality adjustment
would be used in both calculations, we believe that the drug add-on
adjustment for the drug spread would be the same with both approaches.
Therefore, we are proposing to use the ASP minus 3 percent prices as
the basis for developing the drug add-on adjustment to the composite
rate.
1. Options for Applying the Drug Add-On Adjustment to the Composite
Payment Rate
Currently, separately billable ESRD drugs are paid differently to
hospital-based and independent ESRD facilities. EPO is currently the
only drug for which payment is uniform across ESRD facilities; EPO is
paid at the current rate of $10 per 1000 units. All other separately
billed ESRD drugs provided by independent ESRD facilities are currently
paid 95 percent of AWP prices. However, hospital based ESRD facilities
are paid their reasonable cost for the other separately billed drugs
they provide. Because they are paid on cost, hospital-based facilities
have not made the profits from drug payment that independent facilities
have enjoyed.
The statutory language describing the add-on adjustment to the
composite rate does not specifically differentiate between hospital-
based and independent facility composite rate adjustments. However, the
drug add-on provision is included with the other provisions related to
the basic case-mix adjusted composite rate system; thus, it could be
argued that the drug add-on provision was intended to address ESRD
industry concerns about the inadequacy of the composite payment rate.
We believe these concerns apply equally to hospital-based facilities
and independent facilities. Therefore, we are proposing a single
adjustment to the composite payment rates for both hospital based and
independent facilities.
An alternative option would be to develop a separate adjustment for
hospital-based facilities for EPO and one for independent facilities
for all of their separately billed drugs. The IG's report provided the
acquisition costs we are

[[Page 47528]]

using; it did not provide different acquisition costs for hospital-
based and independent facilities. We believe that it would not be
appropriate for us to use these data to create two separate
adjustments. The following discussion outlines the development of the
drug add-on adjustment under both options--a single factor and separate
factors.
2. Computation of Drug Add-On Adjustment to the ESRD Composite Payment
Rate
i. Data
To develop the drug add-on adjustment we used historical total
aggregate payments for separately billed ESRD drugs for half of 2000
and all of 2001 and 2002. For EPO, these payments were broken down
according to type of ESRD facility (hospital-based versus independent).
We also used the number of dialysis treatments performed by these two
types of facilities over the same period.
ii. ASP Minus 3 Percent
We updated the ASP minus 3 percent prices, for the first quarter of
2004, to represent 2005 prices. We used the projected annual price
growth factor for National Health Expenditure prescription drugs of
3.39 percent.

TABLE 12
------------------------------------------------------------------------
First quarter
2004 average Quarter 2005
Drugs sales price average sales
first minus 3 price minus 3
percent percent
------------------------------------------------------------------------
Epogen.................................. $8.74 $9.04
Calcitriol.............................. 0.66 0.68
Doxercalciferol......................... 2.55 2.64
Iron--dextran........................... 9.22 9.54
Iron--sucrose........................... 0.34 0.35
Levocarnitine........................... 7.15 7.39
Paricalcitol............................ 3.86 3.99
Sodium--ferric--glut.................... 4.15 4.29
Alteplase, Recombinant.................. 27.74 28.68
Vancomycin.............................. 3.40 3.52
------------------------------------------------------------------------

iii. Current Medicare Reimbursement
We updated the first quarter 2004 Medicare payment amounts (95
percent of AWP), based on the January 2004 Single Drug Pricer, for
drugs other than EPO, to estimate 2005 payment amounts by using an
estimated AWP growth of 3 percent. These growth factors are based on
historical trends of AWPs. We did not increase the price for Epogen
since payment was maintained at $10.00 per thousand units prior to MMA.

TABLE 13
------------------------------------------------------------------------
Current medicare
Drugs reimbursement
prices for 2005
------------------------------------------------------------------------
Epogen................................................ $10.00
Calcitriol............................................ 1.42
Doxercalciferol....................................... 5.67
Iron--dextran......................................... 18.45
Iron--sucrose......................................... 0.68
Levocarnitine......................................... 35.23
Paricalcitol.......................................... 5.49
Sodium--ferric--glut.................................. 8.42
Alteplase, Recombinant................................ 37.80
Vancomycin............................................ 7.24
------------------------------------------------------------------------

iv. Dialysis Treatments
We updated the number of dialysis treatments by actuarial projected
growth in the number of ESRD beneficiaries. Since Medicare covers a
maximum of three treatments per week, utilization growth is limited,
and therefore any increase in the number of treatments should be due to
enrollment. In 2005, we project there will be a total of 36.5 million
treatments performed (5.1 million treatments will be performed by
hospital-based facilities and 31.4 million treatments by independent
facilities).
v. Drug Payments
We updated the total aggregate Epogen drug payments for each
hospital-based and independent facilities using historical trend
factors. For 2003 through 2005, the 2002 payment level was increased
each year by trend factors of 2.8 percent for hospital-based facilities
and by 9.4 percent for independent facilities.
Using drug growth factors for drugs paid for by Medicare Part B
carriers, which were calculated from historical data, we updated the
aggregate spending for separately billable drugs, other than EPO, for
independent facilities. We used 24.7 percent for 2003, 23.3 percent for
2004, and 21.4 percent for 2005 as factors because historical growth of
ESRD drugs is similar to that for drugs paid for by Part B carriers.
These factors are projected to approach the level of National Health
Expenditure prescription drug growth. For 2005, we estimate that
spending will reach $185 million for Epogen provided in hospital-based
facilities, and $2,664 million for drugs provided in independent
facilities ($1,568 million for Epogen and $1,096 million for other
drugs).
vi. Add-On Calculation and Budget Neutrality
For each of the ten drugs, we calculated the percent by which ASP
minus 3 percent prices are projected to be less than reimbursement
amounts under the current system for 2005. For Epogen, this amount is
10 percent. We applied this 10 percent figure to the total aggregate
drug payments for Epogen in hospital-based facilities, resulting in a
difference of $18 million. We then calculated a weighted average of the
percentages by which ASP minus 3 percent would be below current
Medicare reimbursement prices for the top 10 ESRD drugs. We weighted
these percentages by using the 2002 Medicare reimbursement values
contained in the OIG report for the ten drugs. This procedure resulted
in a weighted average of 19 percent. Since these ten drugs represented
98 percent of drugs payments, we applied the weighted average to 100
percent or all of aggregate drug spending projections for independent
facilities, producing a projected difference of $516 million.
Combining the 2005 figures of $18 million and $516 million, for a
total of $534 million and then distributing this over a total projected
36.5 million treatments would result in a single add-on to the per
treatment composite rate

[[Page 47529]]

of 11.3 percent. By making this adjustment to the composite rate, we
estimate that the aggregate payments to ESRD facilities would be budget
neutral with respect to drug payments.
Alternatively, we could produce separate drug add-on adjustments
for hospital-based and independent facilities using the same
methodology. Under this option, we could distribute the $18 million
difference in EPO payments to hospital-based facilities based on data
projecting 5.1 million treatments resulting in a hospital-based
facility drug add-on adjustment of 2.7 percent. We would distribute the
$516 million difference in drug payments (including EPO) to independent
facilities using projected treatments of 31.4 million, resulting in a
drug add-on adjustment of 12.8 percent for independent facilities.
Drug prices used in the computation of the proposed drug add-on
adjustment to the ESRD composite payment rate, may be revised based on
later data and will be reflected in the final rule.
3. Composite Rate Effect of Proposed Drug Add-On Adjustment
We used a single drug add-on adjustment for both hospital-based and
independent ESRD facilities, the proposed adjustment to the composite
rate would be 1.113. Separate adjustments would provide a 1.128
adjustment for independent facilities and 1.027 for hospital-based
facilities. The following table illustrates the effect on the composite
payment rates under the two potential drug add-on options. (Case-mix
budget neutrality adjustments are not reflected in this table).

Table 14
------------------------------------------------------------------------
CY 2005 Separate Single add-
Facility type base rate add-on on
------------------------------------------------------------------------
Independent...................... $128.35 $144.78 $142.85
Hospital Based................... 132.41 135.99 147.37
------------------------------------------------------------------------

Under the single add-on, the proportionately higher rate for
hospital-based facilities would be consistent with section 1881(b)(7)
which requires that our payment methods differentiate between hospital-
based facilities and others. Separate add-on adjustments would result
in a significantly higher composite payment rate for independent
facilities, than hospital-based facilities, that is, $8.79 higher per
treatment.
d. Patient Characteristic Adjustments
1. Statutory Authority
The current ESRD composite payment rates do not adjust for
variation in patient characteristics or case mix. Section
1881(b)(12)(A) of the Act, as added by section 623(d)(1) of the MMA,
requires that the outpatient dialysis services included in the
composite rate be case-mix adjusted. Specifically, the statute states
that ``The Secretary shall establish a basic case-mix adjusted
prospective payment system for dialysis services furnished by providers
of services and renal dialysis facilities in a year to individuals in a
facility and to individuals at home. The case-mix under the system
would be for a limited number of patient characteristics.'' In the
following sections, we describe the development of the methodology for
the proposed patient characteristic case-mix adjusters required under
the MMA.
2. Background
Case-mix measures utilizing patient characteristics have been used
in a number of prospective payment systems. Use of a case-mix measure
permits targeting of greater payments to facilities that treat more
costly resource-intensive patients. However, the legislative mandate to
establish a case-mix adjustment for services included in the composite
rate based on a limited number of patient characteristics presents a
unique challenge.
The composite rate represents payment for a fixed bundle of routine
services provided to ESRD patients as part of a dialysis treatment.
Generally, the items and services needed to provide a dialysis
treatment do not vary significantly across patients. Moreover, the
bills for composite payment rate services furnished to ESRD patients,
which are generally submitted monthly, do not identify the specific
items and services provided on a case-by-case basis. In addition, the
Medicare cost reports identify only aggregate costs for composite rate
services at the facility level. Therefore, any case-mix adjustment
based on patient characteristics obtained from the bills for outpatient
ESRD services and applied to the composite rate will reflect only
variation in composite rate costs at the facility level.
Earlier research by Hirth (1999) and Dor (1992) found that if case-
mix adjustments applied only to composite rate items and services the
adjustments played a limited role in predicting variation in costs per
treatment because case-mix and dialysis treatment patterns are very
similar across facilities. However, more recent analyses conducted
under our contract with the University of Michigan, Kidney,
Epidemiology and Cost Center (KECC) found that patient level case-mix
adjustment would be more relevant in a bundled payment system that
includes both composite rate and separately billable items and
services. KECC's research studies relied on an extensive set of
variables to define patient case-mix. These variables included patient
characteristics, a large number of specific comorbidities and clinical
measures (including primary diagnosis) and other (non-Medicare)
insurance coverage, as well as the duration of ESRD. We relied on
linear regression analyses used in the studies to assess the
relationship of patient characteristics and comorbidity measures to per
session cost and Medicare payments to facilities. These studies relied
on data from our administrative files.
We are continuing and expanding the research project in support of
the development of a fully bundled case-mix adjusted system. We are
continuing to explore alternative models and options with more detailed
analysis of patient characteristics as part of the legislatively
mandated report to the Congress in the fall of 2005.
Despite the difficulty in developing a patient characteristic case-
mix adjustment, we were able to develop case-mix adjustment factors for
a limited number of patient characteristics, consistent with the
legislative mandate. As expected, these adjusters are only modest
predictors of variation in average costs for composite services. In
developing the proposed patient characteristic adjustments, we used our
available administrative data. Because facilities do not list
individual composite rate items and services on the dialysis bill,
billing data do not identify resources used by each patient. In

[[Page 47530]]

addition, facilities can underreport or not report comorbid conditions.
Therefore, these bills are not useful for deriving average facility
input costs. Since there are not any current requirements to list
comorbid conditions on the dialysis bill, we used a combination of data
sources to determine co-morbidities for ESRD patients on maintenance
dialysis. These include the Medicare claims history file as well as the
CMS Form 2728 (ESRD Medical Evidence Report) which provides information
on the cause of ESRD and lists 20 possible co-morbidities present at
the onset of a patient's ESRD. The Form 2728 is completed only at the
initiation of dialysis treatment. It is not updated to reflect more
recent medical conditions.
Nonetheless, we found selected variables from the Form 2728 to be
valid predictors of cost per treatment for the proposed case-mix
adjustment, and the Form 2728 was also useful in developing our
proposed case-mix adjustments. As discussed below, the Form 2728
variables were supplemented by additional information we obtained from
billing records.
3. Development of the Proposed Adjustments for Patient Characteristics
We are proposing a methodology to establish a basic case-mix
adjusted composite rate system using a limited number of patient
characteristic variables developed from existing our administrative
files. We analyzed a number of patient level variables including age,
gender, alcohol and drug dependence, inability to ambulate/transfer,
current smoker, number of years since ESRD onset, weight, height, mean
BUN, and mean creatinine clearance, as well as a number of
comorbidities.
As a means to estimate how average cost variations among facilities
are influenced by selected patient characteristics, extensive analyses
were performed to develop a proposed ``basic case-mix adjusted PPS, for
a limited number of patient characteristics,'' as specified in the
statute. We analyzed the average cost per dialysis session (including
both hemodialysis and Method I peritoneal dialysis converted to
equivalent 3 times per week hemodialysis sessions) from national data
gathered for the years 2000, 2001, and 2002.
A stepwise regression was used to select a limited set of variables
that were predictive of average facility cost per treatment. We used
data pooled over a three-year period because we found the regression
coefficients to reflect a consistent pattern over three years. We used
data pooled over a three-year period to minimize the potential for
volatility in the regressive coefficients. The analysis controlled for
selected variables that influence facility costs, but are not case-mix
related. These variables included wage index, the natural log of the
number of dialysis sessions provided annually by the facility, type of
facility, chain affiliation, and percentage of patients with urea
reduction ratio (URR) as a measure of dialysis dose equal to or greater
than 65 percent. The proposed model is based not only on the predictive
power of these measures, but also upon objectivity (for example,
discrete variables: age/gender), clinical plausibility, and
practicality (that is, availability) of data collection. The variables
used were assessed for their clinical plausibility by clinicians from
the University of Michigan and CMS. Physicians assessed a proposed list
to determine relationship of the proposed comorbidities to ESRD
patients, and clinical practice/patterns.
In addition to exploring a number of potential case-mix variables,
we examined two methods, that is, linear and log linear models of the
composite rate costs. We selected the log linear model in order to
yield patient specific case-mix adjustments which can be multiplied by
a dialysis facility's otherwise applicable composite rate payment. In
this proposed rule, we provide a detailed example of the calculation of
the proposed case-mix adjusted composite rate payments.
4. Proposed Patient Characteristic Adjustments
As discussed in the background section above, the basic case-mix
system is constrained by the composite rate and the data available for
these adjustments. While we analyzed a number of variables, four
patient characteristic variables were found to be modest predictors of
cost variation among ESRD facilities. These patient characteristic
variables include gender, age, and two comorbidities (AIDs and PVD)
(See table 3 for specific ICD 9 codes for these comorbidities). Each of
the gender categories was also divided into three age categories so
that one adjustment factor could be developed to encompass both gender
and age. The proposed patient characteristic adjustments are discussed
below.
i. Gender and Age
We are proposing adjustments for both gender and age. We found that
gender and age were strong predictors of facility cost variations. In
addition, data on gender and age are readily available, and are
objective measures. After examining a number of options for age, we are
proposing under 65, 65-79, and over 80 as the three categories for age.
We attempted to develop a case-mix adjuster specific to the under 18
age group. However, the population in that age group that was included
in the data used to develop the case-mix adjustments was too small, and
was generally concentrated in a very small number of facilities.
While we recognize that pediatric patients are more costly to
treat, those patients are generally treated in specialized pediatric
facilities. As provided in MMA, those facilities can request
adjustments to their composite payment rates through the exceptions
process. This process will enable pediatric facilities to obtain
payments that specifically recognize the higher cost associated with
treating these patients. In developing the age adjustments, data for
those patients were grouped into the under 65 age category. We note
that adjustments for both gender and age are consistent with the MA
risk adjustment models for ESRD patients.
ii. Proposed Comorbidity Adjustments
As discussed above, the effect of the costs of dialysis for a
number of conditions were analyzed. These included several
comorbidities that did not have a statistically significant
relationship to facility costs. In other cases, the lack of data
precluded inclusion of a comorbid condition in the proposed patient
characteristic adjustments. That is, we are unable to propose any
adjustments based on data that cannot be routinely reported, (for
example, some data elements that are reported only on the Form 2728).
For the reasons discussed above, the Form 2728 is not an appropriate
source of information since it is not updated after a patient enters
the ESRD program. Two variables not currently available on the Medicare
bill are weight and height. Weight and height are used to compute a
patient's body mass index (BMI). Our analysis indicates that patients
with extremely low or high BMI are costly to treat. Since BMI is
directly related to a patient's dialysis prescription, we believe this
factor could be an important measure of resource consumption related to
the composite payment rate. We also believe that the length of time a
patient is dialyzed could directly affect composite rate costs. We are
currently exploring the feasibility of developing a mechanism to
collect these data on the ESRD bill. In addition, we are soliciting
comments on other data elements that could be added to the bill

[[Page 47531]]

that could be relevant predictors of composite rate costs.
We also examined whether having cancer was predictive of higher
resource used. We examined all cancers reported within the last 3 to 10
years as reported on our claims history file or the Form 2728. While a
patient's history of cancer was associated with higher costs, we found
this measure to be too broad to be clinically meaningful. We will
continue to evaluate this condition as a potential variable for
refinement purposes. As ESRD facilities begin reporting patient
comorbidities, we expect that we will be in a better position to
identify the specific cancer diagnoses that may be related to increased
composite rate costs.
We also explored whether diabetes as a comorbidity is predictive of
high resource use. We found that the predictive power of diabetes was
dependent on whether PVD was part of the model. PVD was always
statistically significant, when accounted for, while most measures of
diabetes were not strongly associated with facility costs. Therefore,
we are proposing a case-mix adjustment for PVD diagnoses. We believe
this adjustment appropriately addresses the higher costs associated
with sicker diabetic patients. We note that about 73 percent of
diabetes patients included in our data also had PVD. Another comorbid
condition that was found to be a significant predictor of facility cost
is AIDs. This diagnosis is currently coded as part of the claims data.
Another Form 2728 variable we examined was the presence of a
substance (alcohol and drugs) dependence diagnosis. While the presence
of substance abuse was found to be predictive of higher facility level
costs, we are not proposing an adjustment for this comorbidity at this
time since the substance abuse diagnosis is underreported on the
claims. We are soliciting comments on the variables included in the
proposed patient characteristic adjustment as well as recommendations
for the inclusion of other potential variables that may affect the
costs of dialysis.
In summary, we are proposing to use a limited number of patient
characteristics that do explain variation in reported costs for
composite rate services consistent with the legislative requirement.
The proposed adjustment factors are as follows:

Table 15
------------------------------------------------------------------------

------------------------------------------------------------------------
Female........................ age < 65 years.................. 1.11
age 65-79 years................ 1.00
age >79 years.................. 1.16
Male.......................... age < 65 years.................. 1.21
age 65-79 years................ 1.17
age >79 years.................. 1.23
AIDS.......................... ............................... 1.15
PVD........................... ............................... 1.07
------------------------------------------------------------------------

While the magnitude of some of the patient specific case-mix
adjustments appears to be significant, facility variation in the case-
mix is limited. This is because of the overall similarity of the
distribution of patients among the eight case-mix classification
categories across facility classification groups. This is reflected by
the average case-mix adjustment based on 2002 data for the various
types of ESRD facilities shown in the table below.

Table 16
------------------------------------------------------------------------
Average case
Facility type mix adjustment
------------------------------------------------------------------------
All..................................................... 1.1919
Independent............................................. 1.1917
Hospital Based.......................................... 1.1936
Urban................................................... 1.1931
Rural................................................... 1.1865
Small (< 5k treatments/yr.).............................. 1.1911
Medium (5-10k treatments/yr.)........................... 1.1910
Large (>10k treatments/yr.)............................. 1.1924
Non-profit.............................................. 1.1924
For-profit.............................................. 1.1918
------------------------------------------------------------------------

As illustrated from this table, regardless of the type of provider,
the average case-mix adjustments for patient characteristics do not
vary significantly. We are continuing research to develop a more fully
bundled proposed model that is not constrained by the existing
composite rate. We will continue to study the predictive value of
comorbidities and facility and patient level variables as part of the
ongoing research. In addition, we are aware that by limiting the number
of variables for the patient characteristics adjustment applicable to
the composite payment rate, we are limiting the predictive power of the
model. We are planning to consider additional variables to refine and
update the proposed patient characteristics. Once we have implemented
this basic case-mix system, we will continue to analyze comorbidities
(on the reported claims file) and will consider expanding the list of
variables used in the patient classification adjustment. In addition,
we will be working with our fiscal intermediaries to improve the
reporting of comorbidities on claims.
5. Technical Description of Model Used To Develop the Proposed Patient
Characteristic Adjustments
Both facility and patient level variables were used for the
development of the proposed case-mix adjustment. Facility costs are
based on Medicare allowable costs reported by facilities for dialysis
and related services for which they are reimbursed through the
composite rate. The sources of the cost data are the Medicare
Independent Renal Dialysis Facility Cost Reports (Form CMS 265-94) and
the Medicare Hospital Cost Reports (Form CMS 2552-96). We used the most
current set of facility cost reports available (cost reports updated
through December 2003 and made publicly available in March 2004).
All cost reports spanning any part of calendar years 2000, 2001 or
2002 were included in the development of the case mix adjusters. While
for most facilities, especially independent facilities, a single cost
report encompasses the entire calendar year; data for some facilities,
most notably those whose reporting period spans two calendar years (for
example, October through September rather than January through
December) were pro-rated to calculate the average treatment cost during
a calendar year. The resulting numbers of cost reports used in the
analyses are shown in the table below by facility type and year. Note
that currently there are fewer cost reports available for analysis in
2002 because many facilities have not yet submitted cost reports for
that year. The final version of this regulation will contain the most
recent data available.

Table 17
------------------------------------------------------------------------
2000 2001 2002
------------------------------------------------------------------------
Independent facilities....................... 3,027 3,034 2,508
Hospital-based facilities.................... 477 466 456
------------------------------------------------------------------------

The average treatment cost per dialysis session for each facility
was calculated by dividing the total reported cost for dialysis and
related services by the total number of dialysis treatments. The source
of the reported cost for independent facilities was Worksheet B from
Form CMS 265-94 and, for hospital-based facilities, Worksheet I-2 (Form
CMS 2552-96). The source for the total number of dialysis treatments
for independent facilities was worksheet Form CMS265-94 and, for
hospital-based facilities, worksheet I-4 (Form CMS 2552-96). Note that,
for CMS Form 2552-96 and CMS Form 265-94, values

[[Page 47532]]

in the fields for renal dialysis and home program dialysis were used in
the cost and treatment calculations. For the CMS Form 265-94 and the
CMS Form 2552-96 (Worksheet C, and worksheet I-4, respectively) values
in the field home program CAPD and home program CCPD were stated in
terms of patient weeks, rather than the number of treatments. These
cells were multiplied by three to make them comparable to the number of
hemodialysis sessions per week. The method used was consistent with the
research (Dor, Held, Pauley 1992, Hirth, et.al., 1999, Griffiths,
et.al., 1994, and Ozgen and Ozcan, 2002).
This method created an average Medicare allowable cost per dialysis
treatment for each facility year of observation. Using the facility's
Medicare billing number, cost report data were linked to claims data.
For some facilities more than one billing number appears on claims and
a list of correspondence among billing was used to link the claims to
the cost report facility identifiers. This linkage was somewhat
ambiguous for hospital facilities with satellite centers.
Patient level data was obtained from the Medicare claims data, and
the Medical Evidence Form (CMS 2728). ESRD patients were identified
using the Renal Beneficiary and Utilization System (REBUS), Medical
Evidence and Master Patient File Records. Dialysis-related services
(for example, the number of dialysis sessions) were identified for ESRD
patients by Billing source (72x: renal dialysis facility bills),
revenue center codes and the Healthcare Common Procedure Coding System
(HCPCS).
6. Study Sample
Regression models for the average cost per session were used to
estimate the typical cost per session. The average cost per session can
be influenced by facilities with exceptional costs or with exceptional
case-mix measures. To insure that the sample would characterize the
patterns across the majority of facilities rather than being influenced
by a few exceptional, non-representative facilities, the following
facilities were excluded:
Facilities with missing data from the cost reports or
claims data. Twelve percent of the facilities lacked reported data.
Facilities with high or low average costs.
Facilities with exceptions.
Facilities with extremely high or low proportions of
patients with relevant medical cormorbidities.
Small facilities.
Facilities with high or low average costs were determined based
upon their composite rate. Facilities, having values for the log of the
ratio of average costs to the composite rate of less than minus 0.5 or
greater than 1.0 were excluded. This excluded less than 1 percent of
facilities. Some facilities, that is, those with extremely high or low
values based on selected patient characteristics (for example, percent
of patients having a specific comorbidities such as AIDs, HIV, or
alcohol and drug dependence) and selected facility characteristics (for
example, facility size or URR). As with average costs, facilities with
extreme variables did not represent the normal distribution of patient
characteristics across facilities. This excluded 1.6 percent of the
facilities. In addition, we excluded small facilities with less than 20
full patient years of dialysis during the year because it was difficult
to assess the relationship between case-mix and facility costs based on
the experience of a small number of patients. Facilities treating a
small number of patients represented approximately 6.9 percent of the
total facilities.
The sample excluded facilities with exceptional reimbursement
levels. These included facilities with exceptions, facilities with
higher than average payments, for example, with $3.00 or greater than
the predicted composite rate payments. We excluded facilities based on
our list of exceptions granted from November 1993 to July 2001. Some
facilities were not included within the sample because their average
payments were greater than the calculated (predicted) composite rate
for the individual facility. While for the majority of the facilities,
average composite rate payments were exactly as predicted, for some
facilities, the payments were $3.00 greater than the predicted rate.
These facilities were excluded because they were likely to be
facilities with errors in reporting or facilities with exceptions. Of
all of the facilities in the sample, 7.5 of the facilities were
excluded from the sample.
7. Developing Case-Mix Measures at Each Facility Based on Patient-
Specific Data
Facility-level case-mix measures were defined using certain
demographic and comorbidity indicators for the Medicare dialysis
patients in each facility for CYs 2000 to 2002. In aggregating patient
data by facility, case-mix measures for each patient were weighted by
the number of hemodialysis-equivalent dialysis sessions received in
each facility. This process gives approximately 12 times as much weight
to the characteristics of patients receiving a full year of dialysis
care at a particular facility as compared to a patient receiving only
one month of care at that facility. The resulting facility-level case-
mix measures reflect how case-mix is distributed across individual
treatments provided in the facility for Medicare dialysis patients. The
number of dialysis sessions for each patient in each facility was
obtained from Medicare outpatient institutional dialysis claims. The
number of peritoneal dialysis patient days reported on each claim was
multiplied by 3/7 to yield the number of hemodialysis-equivalent
dialysis sessions provided during the time period covered by each
claim. (For additional information see Phase I KECC Report, dated
August 2002, p. 43).
8. Statistical Models
We explored a number of statistical methods to model the
relationship between composite rate costs and patient/facility
characteristics. We explored both linear and log-linear ordinary least
squares regression models for each year from 2000 to 2002 to predict
the natural log of the ratio of each facility's composite rate costs
divided by that facility's composite payment rate (without regard to
exception payments).
i. Choice of Estimation Method
We are proposing to use the log linear model in the methodology
explained below in order to yield an easily administered case-mix
adjuster which can be multiplied by the patient's otherwise applicable
composite payment rate. This case-mix adjustment system also controls
for selected variables.
We used the cost to payment ratio (that is, the natural log of the
ratio of reported costs compared to the composite rate calculated for
each facility) as the dependent variable in the models. The analysis
that supports our decision is described in detailed below. In order to
determine how reimbursement levels could be adjusted to reflect the
costs of treating different patients, estimates of how the cost of
providing dialysis services (that is, the composite rate) varies
according to the patient characteristics (for example, age gender and
comorbidities) were completed. Because the reported cost per treatment
for each facility, in part, reflects the level of reimbursement (for
example, Medicare payments) that the facility received, the measure of
facility costs used is defined as the ratio relative to the current
standard reimbursement level for each facility. For the purposes

[[Page 47533]]

of these analyses, the standard Medicare reimbursement payments for
composite rate services (excluding those facilities with payment
exceptions) were used. These currently vary across facilities based on
the application of the area wage index used to develop the patient
characteristics adjustment. This wage index (that is, labor costs) was
used to account for regional differences in labor costs, and includes
an adjustment for hospital based versus independent facility status.
As we have indicated, the costs of treatment varies from the
composite rate payment for a number of reasons, including differences
in the patient case-mix. The ratio of average reported costs at each
facility were compared with the calculated composite rate payment in
order to measure any variation in costs (that is, facility costs) from
the composite rate. This cost to payment ratio measures the extent to
which costs at a facility are higher or lower than the payment that
would be expected based on their labor costs and facility type.
Regression analysis was used to determine the extent to which the ratio
varied with the average case-mix for each facility.
The analysis indicated that a log transformation of this cost to
payment ratio was less skewed and a better fit (that is, the predicted
variables were closer to the actual values using the log
transformation).
ii. Control Variables
Apart from patient clinical and demographic characteristics, the
proposed model also controls for selected other variables. These
selected control variables include the wage index, the natural log of
facility size (number of annual treatments), hospital-based/independent
status, chain affiliation, and percent of patients with urea reduction
ratios (URRs) greater than or equal to 65 percent. These control
variables were included in the proposed model in order to account for
the separate effect of facility variables and one readily available
outcome variable on composite rate costs. These control variables were
included in order to reduce potential distortion in the patient
specific case-mix adjustors attributable to facility characteristics.
We included the wage index to account for differences among facilities
in area wage levels. We used facility size as a control factor because
larger facilities, on average, have lower per treatment costs than
smaller facilities. The hospital-based/independent classification was
used because hospital based providers tend to have higher self-reported
costs. Chain ownership is included in the model to account for
differences among chains due to reporting conventions, as well as
reflect similarities among facilities within chains. The URR was
included as a control variable to account for a quality of care outcome
measure at each facility, thereby mitigating any potential bias between
composite rate costs and quality of care on the model's coefficients.
iii. The Log-Linear Model for Facility Costs
We identified a limited number of comorbidities that are strong
predictors of composite rate costs and developed an estimated
adjustment factor for each of these comorbidities. In order to yield an
adjustor that can be multiplied with the composite rate payment, the
model was used to estimate the facility's reported composite rate costs
per treatment, divided by the composite payment rate calculated for
each facility. The resulting ratio was modeled using case-mix and
control variables. Analysis indicated that a log transformation of this
ratio was less skewed and was better fit by the model (that is,
predicted values were closer to actual values using the log
transformation, especially for high cost facilities).
For facility j, the case-mix is measured by a vector of values,
denoted by Xj. These values include both control variables
and case-mix measures. The log of the ratio of cost per session
(Cj) to composite rate (Rj) is denoted by
Yj=log(Cj/Rj). The multiple
observations for three years are not indicated explicitly. The model
equation is Yj = Xj [beta] + [egr]j,
where [beta] is the vector of coefficients for the predictor variables
and [egr]j is an error term. This model is equivalent to the
following model for cost for patient i, with a vector of individual
characteristics Xij, at facility j: Cij =
Rj eXij[beta].
9. Identifying Factors for Case-Mix Adjustment
An evaluation of individual case-mix factors as potential risk
adjusters was performed using several criteria to explain variation in
facility costs. Consideration was also given to the validity of these
potential case adjustors to costs based on clinical judgment, the
stability of this relationship over time, the objectivity and accuracy
of the data used to compute the factors, the reliability of information
reported by different providers, and the feasibility of including them
as risk adjusters.
Case-mix factors that explained statistically significant variation
in facility costs were identified based on a regression model that used
a stepwise selection method. Unless otherwise specified, case-mix
measures represent the fraction of dialysis sessions in each facility
that were provided to patients having the relevant characteristic or
comorbidity. Case-mix measures that were considered for selection in
the model included age/gender groups (ages < 65, 65-79 and 80+ years,
separately for females and males), less than one year of treatment for
ESRD, average weight among adult dialysis patients (ages>=20), low body
mass index among adult dialysis patients (BMI< 18.5 kg/m\2\) and the
presence of individual comorbidities that were previously described
that were developed from a combination of data from the Medicare claims
history file and the CMS Form 2728.
10. Using the Model To Apply a Patient-Specific Case-Mix Adjustment to
the Composite Rate
The regression coefficients that are estimated using facility cost
model we discuss above can be used to apply a patient-specific case mix
adjustment to the composite rate. This is accomplished by re-
transforming the estimated coefficients to obtain relative factors for
case mix adjustment. Based on a facility level cost model, where
Xn is the proportion of patients in a facility having a
specific characteristic (for example, a specific comorbidity), a one
unit change in Xn can be used to characterize the difference
between having and not having a specific patient characteristic. The
coefficient for Xn,[beta]n, then estimates the
change in the dependent variable (the natural log of the ratio of
average composite rate costs to the composite rate) corresponding to
whether or not a patient has that characteristic. The estimated
coefficients can be re-transformed as e Xin[beta]tv to
obtain relative factors for n=1 to N case-mix measures included in the
model.
The relative factors can then be applied multiplicatively to the
composite rate in order to derive a case mix adjusted composite rate.
Since these relative factors were all estimated to have values of 1.00
or greater, an adjustment to the composite rate based on these factors
would necessarily lead to higher payments by Medicare. However, the MMA
provision requires that the modification to the composite rate payment
system be budget neutral. For the purpose of this example only, a
budget neutrality factor that is less than 1.00 must, therefore, also
be applied, with the same factor being applied to all patients and all
facilities.
For patient i in facility j, a case-mix adjusted composite rate,
ARij is

[[Page 47534]]

calculated as a function of the current composite rate, Rij,
the estimated budget neutrality factor, N (to be determined), and an
overall relative factor for case mix adjustment, Aij, where
ARij = Rj * N * Aij, Rj =
([rho]BjWj + (1-[rho])Bj, and
Aij = e^Xij[beta].
In the above equations, [rho] is the fraction of costs attributed
to labor and therefore subject to an adjustment for geographic
differences in wages, 1-[rho] is the fraction of costs attributed to
non-labor inputs, Bj is the base rate for facility j,
Wj is the CMS/BLS wage index for facility j (with 0.9 and
1.3 representing the minimum and maximum values for Wj,
respectively), Xij is a vector of case-mix measures for
patient i at facility j, and B is the vector of coefficients estimated
by the regression model. Parameters Pj and Bj
vary according to whether facilities are independent or hospital-based
and may also vary over time, while Wj is determined either
by the MSA in which each facility is located or by the state location
for facilities not in an MSA.
As suggested by the equations above, the coefficients estimated by
the cost model can be used to derive an aggregate relative adjustment
factor for each patient (Aij) based on their individual
characteristics (Xi). By applying this factor in a
multiplicative fashion to the composite rate, it is also being applied
multiplicatively to the wage index, so that the dollar effect of the
case-mix adjustment also varies across facilities according to regional
differences in labor costs. That is, the case-mix adjustment will be
larger in magnitude for facilities that face relatively high labor
costs. This is appropriate if we expect the higher level of care that
may be necessary for certain types of patients, such as those with PVD,
to require additional staff time or more highly trained staff in
locales with differential wage levels. An overall relative case-mix
adjustment factor for patient i, Ai, can be calculated based
on the model as Ai = e^Xi[beta] =
e^X1i[beta]\1\ + ^X2i[beta]\2\ + +
^Xpi[beta]\p\.
However, since this is equivalent to Ai =
e^Xi^[ballot] =
e^X1i^[ballot]\1\*e^X2i^[ballot]
\2\* . . . *e^Xni^[ballot]\n\, the overall relative
case-mix adjustment factor, or patient multiplier, can be calculated by
multiplying together the relative adjustment factors for each case-mix
measure. For every n=1 to p, Xpi corresponds to a 1 if that
characteristic is present and a 0 if that characteristic is not
present. For any characteristic that is not present, Xpi=0
and e^Xpi^[ballot]\p\=1, such that the equation can
be simplified by including only those terms that are relevant for each
patient. For characteristics that are present, Xpi=1, and
the equation can be further simplified by dropping Xpi.
Where the individual factors for case-mix adjustment are age/
gender, PVD and AIDS, the equation used to calculate the relative
factor for case mix adjustment can then be expressed as Ai
=e[beta] = e[beta]\AS\*e[beta]\PVD\*e[beta]\AIDS\ where e[beta]\AS\ is
the relative factor for the appropriate age and sex category (one of
six age/sex groups), e[beta]\PVD\ is the relative factor for the
relevant PVD category (whether PVD is present or absent) and
e[beta]\AIDS\ is the relative factor for the appropriate AIDS category
(whether AIDS is present or absent).
11. Example
To illustrate, the proposed adjustment factors in section 4. above
were used to derive a case-mix multiplier for a 7-year old male who has
been diagnosed with PVD, but not AIDS. Using the proposed adjustment
factors that correspond to males between the ages of 65 and 79 years
and the presence of PVD, the overall case-mix multiplier for this
patient is calculated as A = e\Xb\ = e[beta]\AS\*e[beta]\PVD\ = 1.17 x
1.07 = 1.2519.
A detailed example of the computation of the adjusted composite
payment rate that includes the patient characteristics adjustments, as
well as the applicable adjustments related to the ESRD drug payment
revisions and budget neutrality, is provided later in this section I.
below.
e. Geographic Index
Section 623(d)(1) of the MMA provides that the Secretary shall
adjust the payment rates under this section by a geographic index as
the Secretary determines to be appropriate. This section also specifies
that, if the Secretary revises the current geographic adjustments
applied to the composite payment rate, the revised adjustments must be
phased in over a period of time. The current geographic adjustment
(wage index) is a blend of two wage indexes, one based on hospital wage
data collected by us from fiscal year 1986 and the other developed from
1980 hospital wage and employment data from the Bureau of Labor
Statistics (BLS). The hospital and BLS proportions of the blended wage
index are 40 percent and 60 percent. The actual wage index values and
MSA/non-MSA designations currently used in connection with the
composite rates were published in the August 15, 1986 Federal Register
(51 FR 29412-29417). For the reasons discussed below, we have decided
not to propose any changes to the current wage index adjustments at
this time.
On June 6, 2003, OMB issued Bulletin 03-04 that announced new MSAs
and two new sets of statistical areas, Micropolitan Statistical Areas
and Combined Statistical Areas (CSAs). We recognize that the new OMB
definitions will have implications for the various payment systems we
administer that reflect payment distinctions based on geographic
location. Any changes adopted will not only result in payment
redistributions among ESRD facilities, but will also affect hospitals,
home health agencies, skilled nursing facilities, and rehabilitation
providers.
Therefore, it is essential that we evaluate any proposals to revise
the area definitions and assess the impact of changes in geographical
areas on those payment systems that incorporate adjusters for area wage
levels among urban and rural locations.
Although the MMA gives the Secretary discretion to revise the
outdated wage indexes used in the composite rates, we believe that we
should take no action to replace them with revised measures pending
completion of our assessments.
Therefore, we are proposing to take no action at this time to
revise the current set of composite rate wage indexes and the urban and
rural definitions used to develop them. Once revisions to the urban and
rural definitions are adopted, we may be in a better position to
propose revisions to the geographic adjustments applied to the case-mix
adjusted composite payment rates.
For purposes of applying the required geographic adjustments to the
case-mix adjusted composite rate payment system, we are proposing to
continue using the wage index values and urban and rural designations
that are currently applied to the composite payment rates.
Section 1881(b)(12)(E)(i) of the Act, as added by section 623(d)(1)
of the MMA, requires that the basic case-mix adjusted composite rate
system be designed to result in the same aggregate amount of
expenditure for such services, as estimated by the Secretary, as would
have been made for 2005 if that paragraph did not apply. Therefore, the
drug add-on adjustment and the patient characteristics case-mix
adjustment required by section 623(d)(1) of the MMA must result in the
same aggregate expenditures for 2005 as if these adjustments were not
made.
With respect to the drug payment add-on adjustment the total
estimated difference between the current drug payment based on 95
percent of AWP and the payment amount generated from payment based on
ASP minus 3 percent is reflected in the proposed adjustment which is
designed so that aggregate

[[Page 47535]]

payments are budget neutral. (See section H.4.c.2. of this proposed
rule for more detailed explanation of drug add-on adjustment).
In order to account for the payment effect related to the case-mix
adjustment, we standardized the composite rate by dividing the rate by
the average case-mix modifier of 1.1919. (See section 4.ii Proposed
Cormorbidity Adjustments). The resulting adjustment to the composite
rate is .8390. However, we were not able to simulate the case-mix
effects from the ESRD billing file because comorbidities are generally
not included on the ESRD bill. (See section H.3. of this proposed rule
for the discussion of the data issues.) We propose to refine our
adjustments for case-mix once we have more complete data on the ESRD
bill.

F. Payment Exceptions and the Revised Composite Payment Rates

Before the enactment of BIPA, an ESRD facility could apply for and
receive prospective adjustments or exceptions to its otherwise
applicable composite payment rate under specified circumstances.
Section 1881(b)(7) of the Act and Sec. 413.182 contain the statutory
and regulatory authorities for the provision of exceptions to the
composite payment rates. Section 422(a)(2) of BIPA prohibited the
granting of new exceptions to the composite payment rates on or after
December 31, 2000, except under very limited circumstances, which
expired July 1, 2001. That prohibition remains in effect, with one
exception. Section 623(b) of the MMA amended section 422(a)(2) of BIPA
to afford pediatric facilities the opportunity to seek exceptions
provided they did not have an exception rate in effect as of October 1,
2002. The statute defines a pediatric facility as a renal facility, 50
percent of whose patients are under age 18. On April 1, 2004, we opened
an exception window for pediatric facilities. The exception window
closes September 27, 2004.
Section 422(a)(2)(C) of BIPA provided that any ESRD composite rate
exception in effect on December 31, 2000 would continue as long as the
exception rate exceeds the applicable composite payment rate. The MMA
did not revise that provision. Comparisons of a provider's exception
rate and the standard composite payment rate are straightforward,
because each payment rate was applied on a facility specific basis,
without any adjustments for case-mix. However, in this proposed rule,
we are proposing revised composite payment rates that are case-mix
adjusted. The wage adjusted composite payment rates listed for each
urban and rural area noted in Tables I and II at the end of this
section, although applied on a per treatment basis, are subject to case
mix adjustments in accordance with section 623(d)(1) of the MMA. The
proposed methodology for applying patient characteristic adjusters
applicable to each treatment will determine the case-mix adjustment
which will vary for each patient. Thus, an ESRD facility's average
composite rate per treatment will depend on its unique case mix.
Our policy was not to increase any ESRD facility's exception rate
when there has been a congressionally mandated update to the ESRD
composite payment rates. When computing an exception amount, we take
into consideration the ESRD facility's patient population and the
higher costs relating to the patient mix. Since ESRD facilities can
maintain their current exception rates, we would expect them to compare
the exception rate to the basic case-mix adjusted composite rate to
determine the best payment rate for their facility. We are proposing to
allow each dialysis facility the option of continuing to be paid at its
exception rate or at the basic case-mix adjusted composite rate (which
includes all the MMA 623 payment adjustments). If the facility retains
its exception rate, it would not be subject to any of the adjustments
specified in section 623 of the MMA. Whether a provider's exception
rate in effect on December 31, 2000 will exceed its average case-mix
adjusted composite payment rate is impossible for us to accurately
determine. We believe that projections as to whether an ESRD facility's
exception rate per treatment will exceed its average case-mix adjusted
composite rate per treatment are best left to the entities affected.
Therefore, we are proposing that each ESRD facility with composite rate
exceptions currently in effect, and each pediatric ESRD facility
granted an exception, must notify its fiscal intermediary in writing if
it wishes to withdraw its exception and be subject to the basic case-
mix adjusted composite payment rate methodology set forth in this
notice.
We are proposing to allow an ESRD facility to notify its fiscal
intermediary at any time if it wishes to give up its exception rate.
Once a facility has notified its fiscal intermediary of its election to
give up its exception rate, it would lose that exception rate,
regardless of basis or amount, and be subject to the proposed case-mix
adjusted composite payment rates beginning 30 days after the
intermediary's receipt of the facility's notification letter.
Facilities with exception rates will be required to notify their fiscal
intermediaries only if they wish to forego their exceptions. ESRD
facilities electing to retain their exceptions do not need to notify
their intermediaries. ESRD facilities without exceptions, of course,
will be subject to the composite payment rates determined using the
basic case-mix methodology described in this notice beginning January
1, 2005.

G. Summary of Composite Rate Revisions and Proposed Implementation

As set forth in this proposed rule, we will increase the ESRD
composite payment rates by 1.6 percent effective January 1, 2005 in
accordance with section 623(a) of the MMA. Also, the composite payment
rates will be increased to reflect revisions to the drug pricing
methodology for separately billable drugs, as discussed in section
H.4.b. of this proposed rule. That increase represents the spread or
difference between the payment amounts for separately billable drugs
and biologicals and their acquisition costs based on the OIG's May 2004
report to the Secretary. The development and computation of the drug
add-on adjustment are described in section H.4.c of this proposed rule.
We have also proposed a basic case-mix methodology for adjusting the
composite payment rates based on a limited number of patient
characteristics, as prescribed in section 623(d) of the MMA. The
development and application of the case-mix adjusters are explained in
section H.4.d.4 of this proposed rule. The MMA requires that the basic
case-mix adjusted composite payment rates be effective for services
furnished beginning January 1, 2005. Despite the law's specificity with
respect to effective date, the systems and operational changes
necessary to apply the case-mix adjusters cannot be completed in time
for a prospective January 1, 2005 effective date.
The 1.6 percent statutory increase and 11.3 drug add-on for
independent and hospital-based facilities for separately billable drugs
will be applied to the composite rates for all ESRD facilities
beginning January 1, 2005. However, the computation of the case mix
adjusters depends on age, sex, and specific comorbidities which must be
obtained from the bills for each ESRD facility. Therefore, the
combination of case-mix adjusters used to increase a provider's
otherwise applicable composite payment rate depends on a provider's
unique patient profile and is facility-specific. The correct
computation of these facility-specific case-mix adjusters will require
numerous programming,

[[Page 47536]]

systems, billing, and instructional changes by us, fiscal
intermediaries, and system maintainers. In addition, providers and
their fiscal intermediaries will require education and training not
only on the basic features of the new ESRD PPS, but also on the proper
reporting of patient and clinical information on the bills, essential
for an accurate case mix adjustment in connection with each patient's
claims.
Given these requirements, the lead time necessary for systems
changes, and the anticipated time necessary for providers and their
fiscal intermediaries to familiarize themselves with and correctly
apply the basic case-mix adjustments, we are proposing an April 1, 2005
effective date.
As an alternative to an April 1, 2005 effective date for the
patient characteristic case mix adjustments, we considered two options
for an April 1, 2005 prospective implementation date that would
effectively comply with the MMA's January 1, 2005 effective date. Under
the first option, we would implement the patient characteristic
adjustments on April 1, 2005 and reprocess bills and adjust payments to
January 1, 2005. Under this option, the budget neutrality adjustment
related to the patient characteristic factors would not be applied to
the composite rate until bills are reprocessed.
The second option that we considered was to make payment to
facilities starting January 1, 2005, at the budget neutralized
composite rate, until the systems changes for the case-mix adjustment
can be implemented, April 1, 2005. Payment at this rate would avoid
overpayments, and thus, the need to recoup moneys that may occur when
we retroactively process the claims for case-mix adjustments on April
1, 2005. Under this option, facilities would receive approximately 16
percent less than they would otherwise be entitled to on January 1,
2005.
We rejected both of these alternatives. Both options require the
reprocessing and adjustment of bills for the first quarter of 2005. In
addition, because of the likelihood of payment error due to the
complexity of the process and costly implementation and potential
disruption of payment to ESRD facilities, we believe that these options
are problematic. Given that the expected impact of the patient
characteristic adjustments on ESRD facility payments will, for the most
part, be minimal, we believe that applying the adjustments
prospectively from April 1, 2005 provides a smoother transition to the
new payment methodology.
Finally, this notice provides for a budget neutrality reduction of
.8390 percent to the case-mix adjusted composite payment rates. Our
budget neutrality methodology is explained in section H.4.f. of this
proposed rule. Because section 623(d) of the MMA requires that budget
neutrality be applied in the context of implementing the case-mix
adjusted composite rate payment system, we are proposing that the
effective date of the budget neutrality adjustment should also be April
1, 2005. If we applied the budget neutrality adjustment in January,
rather than when the case-mix adjustment is applied in April, the
result would be that all the composite rates would go down.
We are specifically soliciting comments on these options of the
proposed rule. However, the 1.6 percent statutory increase to the
composite payment rates, and the drug add-on for separately billable
drugs, will be effective January 1, 2005, as these adjustments are
easily implemented prospectively.

IV. Example of Payment Calculation Under the Proposed Case-Mix Adjusted
Composite Rate System

The following example presents 2 patients dialyzing at Neighbor
Dialysis, an independent facility in Baltimore, MD. Patient 1,
John Smith, is a 71-year old male who has been diagnosed with PVD and
AIDS. Patient 2, Jane Doe, is a 59-year old female who has
been diagnosed with PVD.
Calculation of Basic Composite Rate for Neighbor Dialysis
Wage adjusted Composite Rate for independent facilities in Baltimore,
Md. (Table I): $134.93
Wage adjusted Composite Rate increased by proposed drug add-on
adjustment ($134.93 x 1.113): $150.18
Adjusted Facility Composite Rate after budget neutrality (150.18 x
.8490): $126.00
Calculation of Case-mix Adjusted Payments
Patient 1--John Smith:
Male age 65-79 years: 1.17
AIDS: 1.15
PVD: 1.07
Case-mix adjusted rate for John Smith ($126.00 x 1.17 x 1.15 x 1.07):
$181.40
Patient 2--Jane Doe:
Female age < 65 years: 1.11
PVD: 1.07
Case-mix adjusted rate for Jane Doe ($126.00 x 1.11 x 1.07): $149.65

Table 18.--Composite Payment Rates Effective January 1, 2005
[For urban renal facilities]
----------------------------------------------------------------------------------------------------------------
MSA code Name of MSA State Hospital Independent
----------------------------------------------------------------------------------------------------------------
0040....................... ABILENE.................... TX.................... 127.58 123.18
0060....................... AGUADILLA.................. PR.................... 127.57 123.18
0080....................... AKRON...................... OH.................... 137.39 133.68
0120....................... ALBANY..................... GA.................... 127.57 123.18
0160....................... ALBANY-SCHENECTADY-TROY.... NY.................... 129.93 125.70
0200....................... ALBUQUERQUE................ NM.................... 135.60 131.77
0220....................... ALEXANDRIA................. LA.................... 129.70 125.46
0240....................... ALLENTOWN-BETHLEHEM........ PA-NJ................. 134.75 130.87
0280....................... ALTOONA.................... PA.................... 133.79 129.84
0320....................... AMARILLO................... TX.................... 130.03 125.80
0360....................... ANAHEIM-SANTA ANA.......... CA.................... 145.72 142.64
0380....................... ANCHORAGE.................. AK.................... 146.35 146.35
0400....................... ANDERSON................... IN.................... 131.74 127.63
0405....................... ANDERSON................... SC.................... 127.57 123.18
0440....................... ANN ARBOR.................. MI.................... 145.80 142.71
0450....................... ANNISTON................... AL.................... 127.57 123.18
0460....................... APPLETON-OSHKOSH-NEENAH.... WI.................... 132.60 128.56
0470....................... ARECIBO.................... PR.................... 127.57 123.18
0480....................... ASHEVILLE.................. NC.................... 130.57 126.39
0500....................... ATHENS..................... GA.................... 127.57 123.18

[[Continued on page 47537]]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]
]

[[pp. 47537-47586]] Medicare Program; Revisions to Payment Policies Under the
Physician Fee Schedule for Calendar Year 2005

[[Continued from page 47536]]

[[Page 47537]]

0520....................... ATLANTA.................... GA.................... 130.07 125.84
0560....................... ATLANTIC CITY.............. NJ.................... 134.72 130.82
0600....................... AUGUSTA.................... GA-SC................. 130.08 125.85
0620....................... AURORA-ELGIN............... IL.................... 140.21 136.70
0640....................... AUSTIN..................... TX.................... 135.14 131.29
0680....................... BAKERSFIELD................ CA.................... 141.64 138.25
0720....................... BALTIMORE.................. MD.................... 138.55 134.93
0733....................... BANGOR..................... ME.................... 129.34 125.09
0760....................... BATON ROUGE................ LA.................... 131.80 127.71
0780....................... BATTLE CREEK............... MI.................... 134.05 130.11
0840....................... BEAUMONT-PORT ARTHUR....... TX.................... 130.85 126.67
0845....................... BEAVER COUNTY.............. PA.................... 138.52 134.89
0860....................... BELLINGHAM................. WA.................... 132.87 128.85
0870....................... BENTON HARBOR.............. MI.................... 127.57 123.18
0875....................... BERGEN-PASSAIC............. NJ.................... 142.22 140.71
0880....................... BILLINGS................... MT.................... 132.16 128.08
0920....................... BILOXI-GULFPORT............ MS.................... 127.57 123.18
0960....................... BINGHAMTON................. NY.................... 130.00 125.77
1000....................... BIRMINGHAM................. AL.................... 131.83 127.73
1010....................... BISMARCK................... ND.................... 130.64 126.47
1020....................... BLOOMINGTON................ IN.................... 129.78 125.54
1040....................... BLOOMINGTON-NORMAL......... IL.................... 129.69 125.45
1080....................... BOISE CITY................. ID.................... 135.23 131.39
1123....................... BOSTON-SALEM-BROCKTON...... MA.................... 139.45 135.89
1125....................... BOULDER-LONGMONT........... CO.................... 140.62 137.15
1140....................... BRADENTON.................. FL.................... 128.79 124.47
1145....................... BRAZORIA................... TX.................... 134.02 130.08
1150....................... BREMERTON.................. WA.................... 129.14 124.87
1163....................... BRIDGEPORT-NORWALK-DANBURY. CT.................... 141.49 138.08
1240....................... BROWNSVILLE-HARLINGEN...... TX.................... 129.79 125.56
1260....................... BRYAN-COLLEGE STATION...... TX.................... 128.68 124.37
1280....................... BUFFALO.................... NY.................... 133.55 129.59
1300....................... BURLINGTON................. NC.................... 127.57 123.18
1303....................... BURLINGTON................. VT.................... 131.37 127.24
1310....................... CAGUAS..................... PR.................... 127.57 123.18
1320....................... CANTON..................... OH.................... 131.51 127.40
1350....................... CASPER..................... WY.................... 136.29 132.52
1360....................... CEDAR RAPIDS............... IA.................... 131.05 126.92
1400....................... CHAMPAIGN-URBANA-RANTOUL... IL.................... 133.39 129.39
1440....................... CHARLESTON................. SC.................... 131.44 127.33
1480....................... CHARLESTON................. WVA................... 135.86 132.06
1520....................... CHARLOTTE-ROCK HILL........ NC-SC................. 129.79 125.57
1540....................... CHARLOTTESVILLE............ VA.................... 133.15 129.15
1560....................... CHATTANOOGA................ TN-GA................. 132.45 128.39
1580....................... CHEYENNE................... WY.................... 131.21 127.06
1600....................... CHICAGO.................... IL.................... 142.79 139.48
1620....................... CHICO...................... CA.................... 139.53 135.98
1640....................... CINCINNATI................. OH-KY-IN.............. 137.22 133.50
1660....................... CLARKSVILLE-HOPKINSVILLE... TN-KY................. 127.57 123.18
1680....................... CLEVELAND.................. OH.................... 141.66 138.27
11720...................... COLORADO SPRINGS........... CO.................... 135.83 132.03
1740....................... COLUMBIA................... MO.................... 140.08 136.56
1760....................... COLUMBIA................... SC.................... 130.43 126.24
1800....................... COLUMBUS................... GA-AL................. 128.15 123.79
1840....................... COLUMBUS................... OH.................... 134.12 130.19
1880....................... CORPUS CHRISTI............. TX.................... 131.52 127.41
1900....................... CUMBERLAND................. MD-WVA................ 128.22 123.87
1920....................... DALLAS..................... TX.................... 134.47 130.56
1950....................... DANVILLE................... VA.................... 127.57 123.18
1960....................... DAVENPORT-MOLINE........... IA-IL................. 133.12 129.11
2000....................... DAYTON-SPRINGFIELD......... OH.................... 137.82 134.14
2020....................... DAYTONA BEACH.............. FL.................... 127.85 123.47
2030....................... DECATUR.................... AL.................... 127.57 123.18
2040....................... DECATUR.................... IL.................... 131.69 127.57
2080....................... DENVER..................... CO.................... 143.60 140.35
2120....................... DES MOINES................. IA.................... 135.21 131.36
2160....................... DETROIT.................... MI.................... 143.03 139.73
2180....................... DOTHAN..................... AL.................... 127.57 123.18
2200....................... DUBUQUE.................... IA.................... 132.63 128.61
2240....................... DULUTH..................... MN-WI................. 130.10 125.88
2290....................... EAU CLAIRE................. WI.................... 128.84 124.53

[[Page 47538]]

2320....................... EL PASO.................... TX.................... 128.41 124.08
2330....................... ELKHART-GOSHEN............. IN.................... 129.30 125.01
2335....................... ELMIRA..................... NY.................... 132.63 128.60
2340....................... ENID....................... OK.................... 129.51 125.24
2360....................... ERIE....................... PA.................... 131.82 127.74
2400....................... EUGENE-SPRINGFIELD......... OR.................... 133.37 129.37
2440....................... EVANSVILLE................. IN-KY................. 134.10 130.16
2520....................... FARGO-MOORHEAD............. ND-MN................. 133.83 129.88
2560....................... FAYETTEVILLE............... NC.................... 127.57 123.18
2580....................... FAYETTEVILLE-SPRINGDALE.... AR.................... 127.57 123.18
2640....................... FLINT...................... MI.................... 141.83 138.45
2650....................... FLORENCE................... AL.................... 127.57 123.18
2655....................... FLORENCE................... SC.................... 127.57 123.18
2670....................... FORT COLLINS-LOVELAND...... CO.................... 131.49 127.38
2680....................... FT LAUDERDALE-POMPANO BEACH FL.................... 137.23 133.51
2700....................... FORT MYERS-CAPE CORAL...... FL.................... 129.73 125.49
2710....................... FORT PIERCE................ FL.................... 130.09 125.87
2720....................... FORT SMITH................. AR-OK................. 128.97 124.67
2750....................... FORT WALTON BEACH.......... FL.................... 127.57 123.18
2760....................... FORT WAYNE................. IN.................... 129.32 125.05
2800....................... FORT WORTH-ARLINGTON....... TX.................... 133.06 129.04
2840....................... FRESNO..................... CA.................... 142.09 138.72
2880....................... GADSDEN.................... AL.................... 128.48 124.17
2900....................... GAINESVILLE................ FL.................... 130.25 126.06
2920....................... GALVESTON-TEXAS CITY....... TX.................... 137.86 134.20
2960....................... GARY-HAMMOND............... IN.................... 138.47 134.85
2975....................... GLENS FALLS................ NY.................... 128.98 124.68
2985....................... GRAND FORKS................ ND.................... 129.26 124.98
3000....................... GRAND RAPIDS............... MI.................... 133.41 129.44
3040....................... GREAT FALLS................ MT.................... 132.09 128.01
3060....................... GREELEY.................... CO.................... 134.34 130.43
3080....................... GREEN BAY.................. WI.................... 133.34 129.33
3120....................... GREENSBORO-WINSTON SALEM- NC.................... 129.67 125.42
HIGH PT.
3160....................... GREENVILLE-SPARTANBURG..... SC.................... 130.15 125.95
3180....................... HAGERSTOWN................. MD.................... 132.79 128.78
3200....................... HAMILTON-MIDDLETOWN........ OH.................... 134.87 130.98
3240....................... HARRISBURG-LEBANON-CARLISLE PA.................... 133.92 129.97
3283....................... HARTFORD-NEW BRITAIN- CT.................... 140.38 136.90
BRISTOL.
3290....................... HICKORY.................... NC.................... 127.57 123.18
3320....................... HONOLULU................... HI.................... 141.73 138.34
3350....................... HOUMA-THIBODAUX............ LA.................... 128.02 123.66
3360....................... HOUSTON.................... TX.................... 137.24 133.53
3400....................... HUNTINGTON-ASHLAND......... WVA-KY-OH............. 130.11 125.88
3440....................... HUNTSVILLE................. AL.................... 127.57 123.18
3480....................... INDIANAPOLIS............... IN.................... 135.16 131.30
3500....................... IOWA CITY.................. IA.................... 143.23 140.37
3520....................... JACKSON.................... MI.................... 134.43 130.53
3560....................... JACKSON.................... MS.................... 128.82 124.51
3580....................... JACKSON.................... TN.................... 127.57 123.18
3600....................... JACKSONVILLE............... FL.................... 130.77 126.58
3605....................... JACKSONVILLE............... NC.................... 127.75 123.37
3620....................... JANESVILLE-BELOIT.......... WI.................... 128.39 124.05
3640....................... JERSEY CITY................ NJ.................... 138.46 134.84
3660....................... JOHNSON CITY-BRISTOL....... TN-VA................. 127.57 123.18
3680....................... JOHNSTOWN.................. PA.................... 133.36 129.36
3690....................... JOLIET..................... IL.................... 140.66 137.19
3710....................... JOPLIN..................... MO.................... 127.97 123.61
3720....................... KALAMAZOO.................. MI.................... 143.25 139.98
3740....................... KANKAKEE................... IL.................... 130.84 126.66
3760....................... KANSAS CITY................ MO-KS................. 133.22 129.21
3800....................... KENOSHA.................... WI.................... 137.39 133.69
3810....................... KILLEEN-TEMPLE............. TX.................... 128.12 123.75
3840....................... KNOXVILLE.................. TN.................... 127.83 123.45
3850....................... KOKOMO..................... IN.................... 132.39 128.34
3870....................... LA CROSSE.................. WI.................... 131.00 126.87
3880....................... LAFAYETTE.................. LA.................... 132.84 128.83
3920....................... LAFAYETTE.................. IN.................... 128.65 124.33
3960....................... LAKE CHARLES............... LA.................... 130.17 125.97
3965....................... LAKE COUNTY................ IL.................... 141.41 137.98
3980....................... LAKELAND-WINTER HAVEN...... FL.................... 127.57 123.18
4000....................... LANCASTER.................. PA.................... 135.38 131.54

[[Page 47539]]

4040....................... LANSING-EAST LANSING....... MI.................... 135.98 132.18
4080....................... LAREDO..................... TX.................... 127.57 123.18
4100....................... LAS CRUCES................. NM.................... 127.57 123.18
4120....................... LAS VEGAS.................. NV.................... 141.01 137.58
4150....................... LAWRENCE................... KS.................... 131.82 127.73
4200....................... LAWTON..................... OK.................... 130.27 126.08
4243....................... LEWISTON-AUBURN............ ME.................... 128.39 124.06
4280....................... LEXINGTON-FAYETTE.......... KY.................... 130.21 126.01
4320....................... LIMA....................... OH.................... 133.29 129.29
4360....................... LINCOLN.................... NE.................... 129.96 125.72
4400....................... LITTLE ROCK-N LITTLE ROCK.. AR.................... 135.96 132.17
4420....................... LONGVIEW-MARSHALL.......... TX.................... 127.57 123.18
4440....................... LORAIN-ELYRIA.............. OH.................... 134.22 130.30
4480....................... LOS ANGELES-LONG BEACH..... CA.................... 146.35 145.02
4520....................... LOUISVILLE................. KY-IN................. 134.40 130.50
4600....................... LUBBOCK.................... TX.................... 129.87 125.63
4640....................... LYNCHBURG.................. VA.................... 128.00 123.63
4680....................... MACON-WARNER ROBINS........ GA.................... 129.46 125.19
4720....................... MADISON.................... WI.................... 135.45 131.63
4763....................... MANCHESTER-NASHUA.......... NH.................... 131.20 127.04
4800....................... MANSFIELD.................. OH.................... 130.40 126.20
4840....................... MAYAGUEZ................... PR.................... 127.57 123.18
4880....................... MCALLEN-EDINBURG-MISSION... TX.................... 127.57 123.18
4890....................... MEDFORD.................... OR.................... 133.00 128.99
4900....................... MELBOURNE-TITUSVILLE....... FL.................... 130.19 125.99
4920....................... MEMPHIS.................... TN-AR-MS.............. 135.10 131.23
4940....................... MERCED..................... CA.................... 138.45 134.83
5000....................... MIAMI-HIALEAH.............. FL.................... 138.47 134.85
5015....................... MIDDLESEX-HUNTERDON........ NJ.................... 134.87 130.99
5040....................... MIDLAND.................... TX.................... 135.10 131.24
5080....................... MILWAUKEE.................. WI.................... 136.75 133.02
5120....................... MINNEAPOLIS-ST PAUL........ MN-WI................. 136.11 132.33
5160....................... MOBILE..................... AL.................... 129.00 124.70
5170....................... MODESTO.................... CA.................... 138.05 134.41
5190....................... MONMOUTH-OCEAN............. NJ.................... 133.08 129.06
5200....................... MONROE..................... LA.................... 129.18 124.90
5240....................... MONTGOMERY................. AL.................... 130.14 125.92
5280....................... MUNCIE..................... IN.................... 131.36 127.22
5320....................... MUSKEGON................... MI.................... 131.68 127.57
5345....................... NAPLES..................... FL.................... 130.55 126.35
5360....................... NASHVILLE.................. TN.................... 132.71 128.70
5380....................... NASSAU-SUFFOLK............. NY.................... 146.35 144.35
5403....................... NEW BEDFORD-FALL RIVER- MA.................... 131.79 127.70
ATTELBORO.
5483....................... NEW HAVEN-WATERBURY-MERIDEN CT.................... 137.50 133.80
5523....................... NEW LONDON-NORWICH......... CT.................... 137.24 133.52
5560....................... NEW ORLEANS................ LA.................... 130.68 126.50
5600....................... NEW YORK................... NY.................... 146.35 146.35
5640....................... NEWARK..................... NJ.................... 141.09 137.67
5700....................... NIAGARA FALLS.............. NY.................... 130.31 126.11
5720....................... NORFOLK-NEWPORT NEWS....... VA.................... 129.67 125.42
5775....................... OAKLAND.................... CA.................... 146.35 145.92
5790....................... OCALA...................... FL.................... 128.79 124.48
5800....................... ODESSA..................... TX.................... 129.63 125.38
5880....................... OKLAHOMA CITY.............. OK.................... 134.67 130.78
5910....................... OLYMPIA.................... WA.................... 135.49 131.66
5920....................... OMAHA...................... NE-IA................. 132.99 128.98
5950....................... ORANGE COUNTY.............. NY.................... 132.46 128.39
5960....................... ORLANDO.................... FL.................... 132.46 128.39
5990....................... OWENSBORO.................. KY.................... 127.57 123.18
6000....................... OXNARD-VENTURA............. CA.................... 146.28 145.05
6015....................... PANAMA CITY................ FL.................... 127.57 123.18
6020....................... PARKERSBURG-MARIETTA....... WVA-OH................ 130.89 126.73
6025....................... PASCAGOULA................. MS.................... 135.50 131.67
6080....................... PENSACOLA.................. FL.................... 128.26 123.91
6120....................... PEORIA..................... IL.................... 136.83 133.10
6160....................... PHILADELPHIA............... PA-NJ................. 141.48 138.07
6200....................... PHOENIX.................... AZ.................... 137.96 134.32
6240....................... PINE BLUFF................. AR.................... 127.57 123.18
6280....................... PITTSBURGH................. PA.................... 138.69 135.09
6323....................... PITTSFIELD................. MA.................... 133.87 129.91
6360....................... PONCE...................... PR.................... 127.57 123.18

[[Page 47540]]

6403....................... PORTLAND................... ME.................... 132.96 128.94
6440....................... PORTLAND................... OR.................... 139.91 136.40
6453....................... PORTSMOUTH-DOVER-ROCHESTER. NH-ME................. 128.29 123.95
6460....................... POUGHKEEPSIE............... NY.................... 135.84 132.03
6483....................... PROVIDENCE-PAWTUCKET- RI.................... 134.58 130.69
WOONSOCKET.
6520....................... PROVO-OREM................. UT.................... 130.42 126.22
6560....................... PUEBLO..................... CO.................... 137.23 133.52
6600....................... RACINE..................... WI.................... 129.52 125.26
6640....................... RALEIGH-DURHAM............. NC.................... 132.93 128.90
6660....................... RAPID CITY................. SD.................... 128.78 124.47
6680....................... READING.................... PA.................... 133.16 129.15
6690....................... REDDING.................... CA.................... 138.98 135.39
6720....................... RENO....................... NV.................... 144.32 142.52
6740....................... RICHLAND-KENNEWICK......... WA.................... 131.96 127.89
6760....................... RICHMOND-PETERSBURG........ VA.................... 129.76 125.53
6780....................... RIVERSIDE-SAN BERNARDINO... CA.................... 143.65 140.40
6800....................... ROANOKE.................... VA.................... 130.33 126.13
6820....................... ROCHESTER.................. MN.................... 134.23 130.31
6840....................... ROCHESTER.................. NY.................... 134.50 130.60
6880....................... ROCKFORD................... IL.................... 136.62 132.85
6920....................... SACRAMENTO................. CA.................... 144.16 141.12
6960....................... SAGINAW-BAY CITY-MIDLAND... MI.................... 138.22 134.57
6980....................... ST CLOUD................... MN.................... 129.55 125.29
7000....................... ST JOSEPH.................. MO.................... 132.19 128.12
7040....................... ST LOUIS................... MO-IL................. 135.07 131.21
7080....................... SALEM...................... OR.................... 136.70 132.96
7120....................... SALINAS-SEASIDE-MONTEREY... CA.................... 144.09 140.88
7160....................... SALT LAKE CITY-OGDEN....... UT.................... 131.27 127.13
7200....................... SAN ANGELO................. TX.................... 127.57 123.18
7240....................... SAN ANTONIO................ TX.................... 129.30 125.03
7320....................... SAN DIEGO.................. CA.................... 144.75 142.04
7360....................... SAN FRANCISCO.............. CA.................... 146.35 145.92
7400....................... SAN JOSE................... CA.................... 146.35 145.68
7440....................... SAN JUAN................... PR.................... 127.57 123.18
7480....................... SANTA BARBARA-LOMPOC....... CA.................... 139.14 135.58
7485....................... SANTA CRUZ................. CA.................... 140.64 137.18
7490....................... SANTA FE................... NM.................... 129.81 125.59
7500....................... SANTA ROSA-PETALUMA........ CA.................... 146.35 145.59
7510....................... SARASOTA................... FL.................... 131.98 127.90
7520....................... SAVANNAH................... GA.................... 129.72 125.48
7560....................... SCRANTON-WILKES BARRE...... PA.................... 133.66 129.70
7600....................... SEATTLE.................... WA.................... 136.87 133.14
7610....................... SHARON..................... PA.................... 132.08 128.00
7620....................... SHEBOYGAN.................. WI.................... 129.28 125.01
7640....................... SHERMAN-DENISON............ TX.................... 127.57 123.18
7680....................... SHREVEPORT................. LA.................... 133.23 129.23
7720....................... SIOUX CITY................. IA-NE................. 132.47 128.40
7760....................... SIOUX FALLS................ SD.................... 130.62 126.44
7800....................... SOUTH BEND-MISHAWAKA....... IN.................... 130.13 125.92
7840....................... SPOKANE.................... WA.................... 138.38 134.75
7880....................... SPRINGFIELD................ IL.................... 137.27 133.56
7920....................... SPRINGFIELD................ MO.................... 129.48 125.21
8003....................... SPRINGFIELD................ MA.................... 133.39 129.39
8050....................... STATE COLLEGE.............. PA.................... 137.91 134.25
8080....................... STEUBENVILLE-WEIRTON....... OH-WVA................ 131.46 127.35
8120....................... STOCKTON................... CA.................... 146.35 145.06
8160....................... SYRACUSE................... NY.................... 141.36 139.77
8200....................... TACOMA..................... WA.................... 136.53 132.76
8240....................... TALLAHASSE................. FL.................... 129.91 125.67
8280....................... TAMPA-ST PETERSBURG- FL.................... 132.27 128.21
CLEARWATER.
8320....................... TERRE HAUTE................ IN.................... 127.57 123.18
8360....................... TEXARKANA.................. TX-AR................. 135.59 131.75
8400....................... TOLEDO..................... OH.................... 140.91 137.45
8440....................... TOPEKA..................... KS.................... 135.89 132.10
8480....................... TRENTON.................... NJ.................... 135.66 131.82
8520....................... TUCSON..................... AZ.................... 134.02 130.07
8560....................... TULSA...................... OK.................... 133.31 129.30
8600....................... TUSCALOOSA................. AL.................... 133.86 129.91
8640....................... TYLER...................... TX.................... 132.17 128.09
8680....................... UTICA-ROME................. NY.................... 130.41 126.22
8720....................... VALLEJO-FAIRFIELD-NAPA..... CA.................... 146.35 146.18

[[Page 47541]]

8725....................... VANCOUVER.................. WA.................... 139.12 135.53
8750....................... VICTORIA................... TX.................... 127.57 123.18
8760....................... VINELAND-MILLVILLE- NJ.................... 132.48 128.41
BRIDGETON.
8780....................... VISALIA-PORTERVILLE........ CA.................... 142.02 140.48
8800....................... WACO....................... TX.................... 127.81 123.43
8840....................... WASHINGTON................. DC-MD-VA.............. 141.74 138.35
8920....................... WATERLOO-CEDAR FALLS....... IA.................... 129.50 125.24
8940....................... WAUSAU..................... WI.................... 130.90 126.74
8960....................... WEST PALM & DELRAY BEACH... FL.................... 131.84 127.75
9000....................... WHEELING................... WVA-OH................ 131.83 127.74
9040....................... WICHITA.................... KS.................... 136.67 132.93
9080....................... WICHITA FALLS.............. TX.................... 127.57 123.18
9140....................... WILLIAMSPORT............... PA.................... 130.24 126.04
9160....................... WILMINGTON................. DE-NJ-MD.............. 136.71 132.97
9200....................... WILMINGTON................. NC.................... 128.74 124.42
9243....................... WORCESTER-LEOMINSTER....... MA.................... 132.43 128.37
9260....................... YAKIMA..................... WA.................... 132.24 128.18
9280....................... YORK....................... PA.................... 132.45 128.39
9320....................... YOUNGSTOWN-WARREN.......... OH.................... 137.25 133.54
9340....................... YUBA CITY.................. CA.................... 137.02 133.29
----------------------------------------------------------------------------------------------------------------

Table 19.--Composite Payment Rates Effective January 1, 2005
[For rural renal facilities]
----------------------------------------------------------------------------------------------------------------
MSA Code Name of MSA State Hospital Independent
----------------------------------------------------------------------------------------------------------------
AL......................... ALABAMA.................... AL.................... 127.57 123.18
AK......................... ALASKA..................... AK.................... 146.35 146.35
AZ......................... ARIZONA.................... AZ.................... 128.68 124.35
AR......................... ARKANSAS................... AR.................... 127.57 123.18
CA......................... CALIFORNIA................. CA.................... 137.00 133.27
CO......................... COLORADO................... CO.................... 128.21 123.86
CT......................... CONNECTICUT................ CT.................... 136.02 132.22
DE......................... DELAWARE................... DE.................... 128.76 124.44
FL......................... FLORIDA.................... FL.................... 127.75 123.37
GA......................... GEORGIA.................... GA.................... 127.57 123.18
HI......................... HAWAII..................... HI.................... 140.40 136.92
ID......................... IDAHO...................... ID.................... 127.83 123.45
IL......................... ILLINOIS................... IL.................... 127.57 123.18
IN......................... INDIANA.................... IN.................... 127.57 123.18
IA......................... IOWA....................... IA.................... 127.57 123.18
KS......................... KANSAS..................... KS.................... 127.57 123.18
KY......................... KENTUCKY................... KY.................... 127.57 123.18
LA......................... LOUISIANA.................. LA.................... 127.57 123.18
ME......................... MAINE...................... ME.................... 127.57 123.18
MD......................... MARYLAND................... MD.................... 130.27 126.08
MA......................... MASSACHUSETTS.............. MA.................... 135.99 132.19
MI......................... MICHIGAN................... MI.................... 132.98 128.97
MN......................... MINNESOTA.................. MN.................... 127.57 123.18
MS......................... MISSISSIPPI................ MS.................... 127.57 123.18
MO......................... MISSOURI................... MO.................... 127.57 123.18
MT......................... MONTANA.................... MT.................... 127.87 123.50
NE......................... NEBRASKA................... NE.................... 127.57 123.18
NV......................... NEVADA..................... NV.................... 133.20 129.20
NH......................... NEW HAMPSHIRE.............. NH.................... 132.24 128.18
NM......................... NEW MEXICO................. NM.................... 128.68 124.36
NY......................... NEW YORK................... NY.................... 127.78 123.40
NC......................... NORTH CAROLINA............. NC.................... 127.57 123.18
ND......................... NORTH DAKOTA............... ND.................... 127.70 123.31
OH......................... OHIO....................... OH.................... 128.66 124.34
OK......................... OKLAHOMA................... OK.................... 127.57 123.18
OR......................... OREGON..................... OR.................... 132.66 128.64
PA......................... PENNSYLVANIA............... PA.................... 132.54 128.48
PR......................... PUERTO RICO................ PR.................... 127.57 123.18
RI......................... RHODE ISLAND............... RI.................... 130.86 126.69
SC......................... SOUTH CAROLINA............. SC.................... 127.57 123.18
SD......................... SOUTH DAKOTA............... SD.................... 127.57 123.18
TN......................... TENNESSEE.................. TN.................... 127.57 123.18
TX......................... TEXAS...................... TX.................... 127.57 123.18

[[Page 47542]]

UT......................... UTAH....................... UT.................... 128.56 124.24
VT......................... VERMONT.................... VT.................... 127.57 123.18
VA......................... VIRGINIA................... VA.................... 127.57 123.18
WA......................... WASHINGTON................. WA.................... 131.35 127.21
WV......................... WEST VIRGINIA.............. WV.................... 128.43 124.09
WI......................... WISCONSIN.................. WI.................... 127.57 123.18
WY......................... WYOMING.................... WY.................... 131.29 127.15
----------------------------------------------------------------------------------------------------------------

Table 20.--Comorbidities
------------------------------------------------------------------------

------------------------------------------------------------------------
AIDS
042...................... Human immunodeficiency disease
Peripheral vascular disease
0400..................... Gas gangrene
4151..................... Pulmonary embolism and infarction
41511.................... Pulmonary embolism and infarction,
iatrogenic pulmonary embolism and
infarction
440...................... Atherosclerosis
4400..................... Atherosclerosis of aorta
4401..................... Atherosclerosis of renal artery
4402..................... Atherosclerosis of native arteries of the
extremities
44020.................... Atherosclerosis of native arteries of the
extremities, unspecified
44021.................... Atherosclerosis of native arteries of the
extremities, with intermittent
claudication
44022.................... Atherosclerosis of native arteries of the
extremities, with rest pain
44023.................... Atherosclerosis of the extremities with
ulceration
44024.................... Atherosclerosis of the extremities with
gangrene
44029.................... Atherosclerosis of native arteries of the
extremities, with ulceration
4403..................... Atherosclerosis of bypass graft of the
extremities
44030.................... Atherosclerosis of bypass graft of the
extremities of unspecified graft
44031.................... Atherosclerosis of bypass graft of the
extremities of autologous vein bypass
graft
44032.................... Atherosclerosis of bypass graft of the
extremities of nonautologous biological
bypass graft
441...................... Aortic aneurysm and dissection
4410..................... Aortic aneurysm and dissection,
dissection of aorta
44100.................... Aortic aneurysm and dissection,
dissection of aorta, unspecified site
44101.................... Aortic aneurysm and dissection,
dissection of aorta, thoracic
44102.................... Aortic aneurysm and dissection,
dissection of aorta, abdominal
44103.................... Aortic aneurysm and dissection,
dissection of aorta, thoracoabdominal
4411..................... Thoracic aneurysm, ruptured
4412..................... Thoracic aneurysm without mention of
rupture
4413..................... Abdominal aneurysm, ruptured
4414..................... Abdominal aneurysm without mention of
rupture
4415..................... Aortic aneurysm of unspecified site,
ruptured
4416..................... Thoracoabdominal aneurysm, ruptured
4417..................... Thoracoabdominal aneurysm without mention
of rupture
4419..................... Aortic aneurysm and dissection of
unspecified site without mention of
rupture
442...................... Other aneurysm
4420..................... Other aneurysm of artery of upper
extremity
4421..................... Other aneurysm of renal artery
4422..................... Other aneurysm of iliac artery
4423..................... Other aneurysm of artery of lower
extremity
4428..................... Other aneurysm of other specified artery
44281.................... Other aneurysm of other specified artery,
artery of neck
44282.................... Other aneurysm of other specified artery,
subclavian artery
44283.................... Other aneurysm of other specified artery,
splenic artery
44284.................... Other aneurysm of other specified artery,
other visceral artery
44289.................... Other aneurysm of other specified artery,
other
4429..................... Other aneurysm of unspecified site
443...................... Other peripheral vascular disease
4430..................... Other peripheral vascular disease,
Raynaud's syndrome
4431..................... Other peripheral vascular disease,
thromboangiitis obliterans [Buerger's
disease]
4432..................... Other peripherovascular diseases, other
arterial dissection
44321.................... Other peripherovascular diseases, other
arterial dissection, dissection of
carotid artery
44322.................... Other peripherovascular diseases, other
arterial dissection, dissection of iliac
artery
44323.................... Other peripherovascular diseases, other
arterial dissection, dissection of renal
artery
44324.................... Other peripherovascular diseases, other
arterial dissection, dissection of
vertebral artery
44329.................... Other peripherovascular diseases, other
arterial dissection, dissection of other
artery
4438..................... Other peripheral vascular disease, other
specified peripheral vascular disease
44381.................... Other peripheral vascular disease, other
specified peripheral vascular disease,
peripheral angiopathy in diseases
classified elsewhere
44389.................... Other peripheral vascular disease, other
specified peripheral vascular disease,
other
4439..................... Peripheral vascular disease, unspecified

[[Page 47543]]

444...................... Arterial embolism and thrombosis
4440..................... Arterial embolism and thrombosis, of
abdominal aorta
4441..................... Arterial embolism and thrombosis, of
thoracic aorta
4442..................... Arterial embolism and thrombosis, of
arteries of the extremities
44421.................... Arterial embolism and thrombosis, of
arteries of the extremities, upper
extremity
44422.................... Arterial embolism and thrombosis, of
arteries of the extremities, lower
extremity
4448..................... Arterial embolism and thrombosis, of
other specified artery
44481.................... Arterial embolism and thrombosis, of
other specified artery, upper extremity
44489.................... Arterial embolism and thrombosis, of
other specified artery, lower extremity
449...................... Arterial embolism and thrombosis, of
unspecified artery
4450..................... Atheroembolism, of extremities
44501.................... Atheroembolism, of extremities, upper
extremity
44502.................... Atheroembolism, of extremities, lower
extremity
446...................... Polyarteritis nodosa and allied
conditions
4460..................... Polyarteritis nodosa and allied
conditions, polyarteritis nodosa
451...................... Phlebitis and thrombophlebitis
4510..................... Phlebitis and thrombophlebitis of
superficial vessels of lower extremities
4511..................... Phlebitis and thrombophlebitis, of deep
vessels of lower extremities
45111.................... Phlebitis and thrombophlebitis, of deep
vessels of lower extremities, femoral
vein
45119.................... Phlebitis and thrombophlebitis, of deep
vessels of lower extremities, other
4512..................... Phlebitis and thrombophlebitis, of lower
extremities, unspecified
45181.................... Phlebitis and thrombophlebitis, of other
sites, iliac vein
45182.................... Phlebitis and thrombophlebitis, of other
sites, of superficial veins of upper
extremities
45183.................... Phlebitis and thrombophlebitis, of other
sites, of deep veins of upper
extremities
45184.................... Phlebitis and thrombophlebitis, of upper
extremities, unspecified
45189.................... Phlebitis and thrombophlebitis, other
4519..................... Phlebitis and thrombophlebitis,
unspecified
453...................... Other venous embolism and thrombosis
4530..................... Other venous embolism and thrombosis,
Budd-Chiari syndrome
4531..................... Other venous embolism and thrombosis,
Thrombophlebitis migrans
4532..................... Other venous embolism and thrombosis of
vena cava
4533..................... Other venous embolism and thrombosis of
renal vein
4538..................... Other venous embolism and thrombosis of
other specified sites
4539..................... Other venous embolism and thrombosis of
unspecified site
------------------------------------------------------------------------

I. Section 731(b)--Coverage for Routine Costs of Category A Clinical
Trials

[If you choose to comment on issues in this section, please include the
caption ``Section 731(b)'' at the beginning of your comments.]

Section 1862(m) of the Act, as added by Section 731(b) of the MMA,
prohibits the Secretary from excluding payment for the routine costs of
care furnished to a Medicare beneficiary participating in a clinical
trial of a Category A device based on a determination that such care is
not ``reasonable and necessary'' under section 1862(a)(1). In effect,
this section authorizes Medicare to cover the routine costs of clinical
trials involving Category A devices. Category A (experimental/
investigational) devices are defined in Sec. 405.201 as innovative
medical devices about which the Food and Drug Administration (FDA) has
major questions about safety and effectiveness.
For a trial to qualify for payment of routine costs, it must meet
certain criteria established by the Secretary to ensure that the trial
conforms to appropriate scientific and ethical standards. Current
criteria are established in the National Coverage Determination Manual
(CMS Pub. 100-3, Manual section 310.1).
In addition, the MMA established additional criteria for trials
initiated before January 1, 2010 to ensure that the devices involved in
these trials be intended for use in the diagnosis, monitoring, or
treatment of an immediately life-threatening disease or condition.
Guidelines for determining if a device meets this requirement will be
defined through the NCD process.
Section 411.15(o) currently precludes Medicare payment for Category
A devices. We would not revise this section because the MMA does not
require Medicare to pay for the cost of the Category A device (as
opposed to the cost of routine care associated with the trial of a
Category A device).
We are proposing changes to Sec. 405.207. As currently written,
this section precludes coverage of services related to a noncovered
device. Since the Category A device is noncovered, we would amend this
section to allow coverage of routine care services related to a
noncovered Category A device. In addition, we propose language to
cross-reference Sec. 405.201 concerning coverage of Category B
(nonexperimental/investigational) devices. We would not be changing
coverage of Category B devices, but providing consistency by placing
information on Category A and Category B devices in the same section.

J. Section 629--Part B Deductible

[If you choose to comment on issues in this section, please include the
caption ``Section 629'' at the beginning of your comments.]

Section 629 of the MMA provides for regular updates to the Medicare
Part B deductible in consideration of inflationary changes in the
nation's economy. Since 1991, the Medicare Part B deductible has been
$100 per year. The MMA stipulates that the Medicare Part B deductible
will be $110 for calendar year 2005, and, for a subsequent year, the
deductible will be the previous year's deductible increased by the
annual percentage increase in the monthly actuarial rate under section
1839(a)(1) of the Act, ending with that subsequent year (rounded to the
nearest dollar). Section 1839(a)(1) of the Act requires the Secretary
of Health and Human Services to calculate the monthly actuarial rate
for Medicare enrollees age 65 and over.
We propose to update Sec. 410.160(f), ``Amount of the Part B
annual deductible,'' to conform to the MMA and to reflect that the
Medicare Part B deductible is $100 for calendar years

[[Page 47544]]

1991 through 2004. Finally, we plan to publish an annual notification
in the Federal Register, announcing each upcoming year's Part B
deductible. This notification for the Part B deductible will be
included as part of the annual notice we currently publish announcing
Medicare's Part B premiums and actuarial rates.

K. Section 512--Hospice Consultation

[If you choose to comment on issues in this section, please include the
caption ``Section 512'' at the beginning of your comments.]
1. Coverage of Hospice Consultation Services
Effective January 1, 2005, section 512 of the MMA provides for
payment to be made to a hospice for specified services furnished by a
physician who is either the medical director of or employee of a
hospice agency. Payment will be made on behalf of a beneficiary who is
terminally ill (which is defined as having a prognosis of 6 months or
less if the disease or illness runs its normal course), has not made a
hospice election, and has not previously received the pre-election
hospice services specified in section 1812(a)(1)(5) of the Act as added
by section 512 of the MMA. These services comprise an evaluation of an
individual's need for pain and symptom management, counseling the
individual regarding hospice and other care options, and may include
advising the individual regarding advanced care planning.
The decision to elect hospice services is a personal choice and is
generally a decision made between the individual and his or her
physician (probably the physician making the terminal diagnosis).
Therefore, we believe that most individuals will seek this type of
service from their own physician. Thus, we do not expect that the
services of a hospice physician would be necessary for all individuals
who elect hospice. However, a beneficiary, or his/her physician may
seek the expertise of a hospice medical director or physician employee
of a hospice to assure that a beneficiary's end-of-life options for
care and pain management are discussed and evaluated.
Currently, beneficiaries are able to receive this evaluation, pain
management, counseling, and advice through other Medicare benefits. For
example, physicians, typically those who determine the beneficiary's
terminal diagnoses, can provide for these evaluation and management
services as well as for pain and symptom management under the physician
fee schedule. Beneficiaries may also obtain assistance with decisions
pertaining to end-of life issues through discharge planning in
hospitals and through services of social workers, case managers, and
other health care professionals. To the extent that beneficiaries have
already received Medicare-covered evaluation and counseling with
respect to end-of-life care, the hospice evaluation and counseling
would seem duplicative. We intend to monitor data regarding these
services to assess whether Medicare is paying for duplicative services.
We are proposing to cover the services described above for a
terminally ill beneficiary, at the request of the beneficiary or the
beneficiary's physician. The service would, in accordance with the
statute, be available on a one-time basis to a beneficiary who has not
elected or previously used the hospice benefit, but who might benefit
from evaluation and counseling with a hospice physician regarding the
beneficiary's decision-making process or to provide recommendations for
pain and symptom management. Since the beneficiary or his/her physician
decides to obtain this service from the hospice medical director or
physician employee, the evaluation and counseling service may not be
initiated by the hospice, that is, the entity receiving payment for the
service.
The statute specifies that payment will be made to the hospice when
the physician providing the service is an employee physician or medical
director of a hospice. Therefore, other hospice personnel, such as
nurse practitioners, nurses, or social workers, cannot furnish the
services. The statute requires the physicians to be employed by a
hospice; therefore, the service cannot be furnished by a physician
under contractual arrangements with the hospice or by the beneficiary's
physician, if that physician is not an employee of the hospice.
Moreover, if the beneficiary's physician is also the medical director
or physician employee of a hospice, that physician already possesses
the expertise necessary to furnish end-of-life evaluation, management,
and counseling services and is providing these services to the
beneficiary and is receiving payment for these services through the use
of evaluation and management (E&M) codes.
In the event that the individual's physician initiates the request
for services of the hospice medical director or physician, we would
expect that appropriate documentation guidelines would be followed. The
request or referral would be in writing, and the hospice medical
director or employee physician would be expected to provide a written
note on the patient's medical chart. The hospice employee physician
providing these services would be required to maintain a written record
of this service. If the beneficiary initiates the services, we would
expect that the hospice agency would maintain a written record of the
service and that communication between the hospice medical director or
physician and the beneficiary's physician would occur, with the
beneficiary's permission, to the extent necessary to ensure continuity
of care.
We propose to add new Sec. 418.205 and Sec. 418.304(d) to
implement section 512 of the MMA.
2. Payment for Hospice Consultation Services
Section 512(b) of the MMA amends section 1414(i) of the Act and
establishes payment for this service at an amount ``equal to an amount
established for an office or other outpatient visit for evaluation and
management associated with presenting problems of moderate severity and
requiring medical decision-making of low complexity under the physician
fee schedule, other than the portion of such amount attributable to the
practice expense component.'' No existing CPT or HCPCS code
specifically represents these services. We are proposing to establish a
new HCPCS code, G0xx4 Hospice--evaluation and counseling services, pre-
election. The hospice would use this HCPCS code to submit claims to the
Regional Home Health Intermediary (RHHI) for payment for these
services. Utilization of this code would allow us to provide payment
for this service as well as enable us to monitor the frequency with
which the code is used and to assess whether the code is used
appropriately. Payments by hospices to physicians or others in a
position to refer patients for services furnished under this provision
may implicate the Federal anti-kickback statute.
In accordance with the statute, we are proposing that the payment
amount for this service would be based on the work and malpractice
expense RVUs for CPT code 99203 multiplied by the CF (1.34 Work RVU +
0.10 Malpractice RVU)* (CF). This CPT code for an office or outpatient
visit for the evaluation and management of a new patient represents a
detailed history, detailed examination and medical decision making of
low complexity, which, we believe, is quite similar to the components
of this new service provided by a medical director or physician
employed by the hospice

[[Page 47545]]

agency. Assuming that there are no changes in RVUs for CPT code 99203
and that the CY 2005 update to the physician fee schedule is the 1.5
percent specified in the MMA, the national payment amount for this
service would be $54.57 for this service (1.44 * 37.8975).

L. Section 302--Clinical Conditions for Coverage of Durable Medical
Equipment (DME)

[If you choose to comment on issues in this section, please include the
caption ``Section 302'' at the beginning of your comments.]
1. Legislative Requirement
Section 1832(a)(1)(E) of the Act, as added by section 302(a)(2) of
the MMA, requires the Secretary to establish clinical conditions for
payment of covered items of durable medical equipment (DME). The law
requires the Secretary to establish types or classes of covered items
that require a face-to-face examination of the individual by a
physician or practitioner and also require a prescription for these
items.
Covered items of durable medical equipment, prosthetics, orthotics,
and supplies (DMEPOS) have already been divided into classes of covered
items, as established by the local medical review policies (LMRP) and
local coverage determinations (LCD) issued by the durable medical
equipment regional carriers (DMERCs). For example, the contractors have
developed policies on long term home oxygen therapy, canes, crutches,
wheelchairs, hospital beds, urological supplies, spinal orthoses,
surgical dressing, and enteral and parenteral nutrition therapy. These
and other policies for each of the four DMERCs are entered into the
Medicare Coverage Database at http://www.cms.hhs.gov/coverage.

These policies are developed based on clinical evidence and after
discussion with clinical experts in the area. There are already a
number of local coverage determinations and national coverage
determinations that outline the clinical conditions for which these
items are covered. These determinations outline the conditions for
coverage, payment, and the documentation or testing necessary to
establish medical necessity. We propose to continue developing these
clinical conditions of coverage through the local and national coverage
determination process.
We are also proposing to expand the requirement for clinical
conditions of coverage to medical supplies, appliances and devices
defined in 42 CFR 410.36. These are commonly referred to as
prosthetics, orthotics and supplies (POS). We believe items of POS
require the same level of medical intervention and skill as DME. As
with DME, there are already a number of local and national coverage
determinations outlining appropriate clinical conditions for coverage
and propose to continue this process.
From a clinical perspective, we believe that it is appropriate for
beneficiaries requiring DMEPOS to be under the care of a physician and
for DMEPOS orders to occur in the context of routine clinical care. We
believe it is good clinical practice for the beneficiary to be seen by
the physician for their medical condition and the physician to decide
whether or not an item of DMEPOS is appropriate during the face-to-face
examination of the beneficiary. Since we expect a beneficiary to be
seen by their physician for a specific medical condition, we do not
believe that a requirement for a face-to-face examination for initial
orders and at the time of the prescription renewals for items of
continued need (those DMEPOS items where an order is good for only a
certain period of time and requires a follow-up examination by the
physician) would place a burden on the physician or beneficiary, as it
would be part of a necessary examination. We believe this to be the
current practice in most cases.
Our goal is to encourage quality care, to mitigate any
proliferation of use of these products and ensure that only patients
that need items of DMEPOS receive them. To comply with the requirements
of section 302(a)(2) of the MMA and to enhance quality and reduce
fraud, we would establish basic requirements that apply to all items of
durable medical equipment, prosthetics, orthotics, and supplies. We
have identified a proliferation of use for some items of DMEPOS and we
believe that engaging the physician or practitioner early in the
process of ordering DMEPOS will assist us in mitigating any unnecessary
proliferation of use.
This regulation proposes to make a face-to-face exam by the
physician to determine the medical necessity and ordering an item of
DMEPOS an explicit requirement for all initial orders of DMEPOS and at
the time of prescription renewal for all DMEPOS continued need items.
However, we seek specific comments about whether specific items of
DMEPOS should be exempt from the face-to-face examination requirement.
In order for us to verify the medical necessity for an item, the
prescribing physician's or practitioner's records must document the
need at the time the physician or practitioner examines the
beneficiary. For example, a letter to the supplier or to us dated
months after the date the examination was conducted and the order was
written would not be sufficient verification.
2. Provisions Related to DMEPOS
To implement the provisions of the MMA, we would--
Establish a requirement for a face-to-face examination by
a physician, physician assistant (PA), clinical nurse specialist (CNS),
or nurse practitioner (NP), as they are defined in the Act (the
prescribing physician or practitioner) to determine the medical
necessity of durable medical equipment, orthotics and prosthetics.
Require that the prescribing physician or practitioner be
independent from the DMEPOS supplier and may not be a contractor or an
employee of the supplier.
Establish a requirement that the face-to-face examination
should be for the purpose of evaluating and treating the patient's
medical condition and not for the sole purpose of obtaining the
prescribing physician's or practitioner's order for the DMEPOS. We
expect the prescribing physician or practitioner to conduct a
sufficient examination of the patient's medical condition to ascertain
the appropriate overall treatment plan and to order the DMEPOS as only
one aspect of that treatment plan.
Require an order prior to delivery for all items of
durable medical equipment, prosthetics, or orthotics.
Require that the order be dated and signed within 30 days
after the face-to-face examination and include verification of the
examination. We are soliciting comments on the appropriate verification
process.
Require the prescribing physician or practitioner to
maintain appropriate and timely documentation in the medical records
that support the need for all DMEPOS ordered.
Provide that we would promulgate through contractor
instructions other criteria required for payment, such as for
prescription renewal requirements, repair, minor revisions and
replacement. We are interested in comments on whether the Agency should
establish national renewal requirements or permit contractor
discretion.
Provide that we would promulgate through the national
coverage determination process or through the local coverage
determination process additional clinical conditions for items of
DMEPOS.
We propose to revise language in Sec. 410.36 and Sec. 410.38 to
implement section 302(a)(2) of the MMA.

[[Page 47546]]

M. Section 614--Payment for Certain Mammography Services

[If you choose to comment on issues in this section, please include the
caption ``Section 614'' at the beginning of your comments.]

Medicare covers an annual screening mammogram for all beneficiaries
who are women age 40 and older, and one baseline mammogram for
beneficiaries who are women age 35 through 39. Medicare also covers
medically necessary diagnostic mammograms. Payment for screening
mammography, regardless of setting, is paid under the physician fee
schedule, but diagnostic mammography performed in the hospital
outpatient department is currently paid under the hospital outpatient
prospective payment system (OPPS).
Section 614 of the MMA amended section 1833(t)(1)(B)(iv) of the Act
to exclude payment for screening and diagnostic mammograms from the
OPPS. In the OPPS proposed rule, we will discuss our proposal for
payment for diagnostic mammograms using the payments established under
the physician fee schedule. This proposal will parallel the current
practice used for the payment of screening mammography services
provided in the OPPS setting and will be effective January 1, 2005.

N. Section 305--Payment for Inhalation Drugs

[If you choose to comment on issues in this section, please include the
caption ``Section 305'' at the beginning of your comments.]
1. Background
Lung diseases such as chronic obstructive pulmonary disease (COPD)
affect large numbers of Medicare beneficiaries. COPD is the fourth
largest cause of death in America behind heart disease, certain
cancers, and stroke. We hope to reduce the number of new COPD cases by
educating Americans about the disease, its causes, and ways to prevent
it. We hope to improve the lives of Medicare beneficiaries and improve
beneficiary access to treatment for those who already suffer from these
conditions.
Depending on an individual's age and health, a number of steps can
be taken to treat or prevent this. Because approximately 85 percent of
those with COPD are smokers, the first step to avoid the disease is to
stop smoking. Smoking has been linked to a large number of health
problems and is a leading cause of cancer and pulmonary disease. The
Department of Health and Human Services (HHS) has been actively
encouraging Americans to quit smoking through its smoking cessation
initiatives. Americans who quit smoking will enjoy longer, healthier
lives and avoid diseases such as COPD.
We have also recently approved services to address the needs of
Americans suffering from COPD, including lung-volume reduction surgery,
which, performed in more serious cases, removes the diseased lung
tissue, allowing the rest of the lung to function better. Specifically,
effective January 1, 2004, Medicare expanded coverage of lung volume
reduction surgery to include patients, who are not high-risk surgical
patients, who either have severe, upper-lobe emphysema, or have severe,
non-upper-lobe emphysema with low exercise capacity.
A number of drugs are available to treat the persons with asthma or
who develop COPD. These include agents, often inhaled, that expand the
bronchial tubes, allowing the patient to breathe more freely. Access to
these drugs for Medicare beneficiaries has been expanded by the MMA.
Nebulizers and metered dose inhalers (MDIs) are two different
delivery methods to administer inhalation drugs to a beneficiary. A
nebulizer works by aerosolizing liquefied inhalation drugs so that the
medication can be more easily inhaled into the lungs. For about 10 to
30 minutes, a beneficiary breathes the mist via compressor tubing
hooked up to the nebulizer. An MDI consists of a canister of
pressurized medication that is propelled directly into the airways of
the lungs when a beneficiary presses on the inhaler and breathes in
through the mouth, thereby allowing the medicine to take effect
quickly.
Medicare Part B currently pays for nebulizers and inhalation drugs.
However, Medicare Part B does not cover MDIs and, therefore, does not
pay for inhalation drugs delivered by an MDI. An MDI is considered to
be an item of disposable medical equipment (for which there is no
current Part B benefit category) while a nebulizer is considered to be
an item of DME.
The Part D drug benefit improves beneficiary access to inhalation
therapy by covering MDIs (including the inhalation drugs they furnish)
beginning January 1, 2006. In addition, the prescription drug discount
card began offering discounts on MDIs effective June 1, 2004.
Since Medicare currently covers inhalation drugs provided through
nebulizers, but not alternative forms of inhalation therapy, there are
strong financial incentives toward use of the former compared to
alternatives. Our review of the literature over the past decade did not
find that bronchodilators delivered via nebulizers were more effective
than bronchodilators delivered via metered dose inhalers.
Since one delivery method is not clinically superior to the other,
when Medicare covers both methods of delivery of inhalation therapy,
the decision to prescribe one over the other will be made by the
physician and beneficiary based on beneficiary needs and preferences
consistent with applicable standards of medical practice. It would not
be unlikely for many beneficiaries to choose the convenience of MDIs
over nebulizers once the Medicare coverage imbalance is removed in
2006. Since MDIs are less expensive, very portable, and easier to use,
it is likely there will be a substantial shift of Medicare
beneficiaries from nebulizers to MDIs beginning in 2006, even absent
the Medicare payment changes for nebulizers and inhalation drugs in
2005.
2. What Medicare Part B Currently Covers
Medicare Part B currently covers and pays for five separate items
related to nebulizers. All of the items are subject to the standard
Part B deductible and coinsurance.
a. Nebulizers
Medicare Part B currently covers the rental of nebulizers.
Nebulizers are in the ``capped rental'' category of DME for payment
purposes. Payment is made on a monthly basis during the period of
medical need. Medicare pays 10 percent of the payment amount during the
first three months and 7.5 percent during the next 12 months. Section
1834(a) of the Act specifies that the payment amount is equal to the
amount paid for purchase of the nebulizer in 1986, indexed to current
levels by the cumulative DME update factor specified in this
subsection. Thus, Medicare will pay up to a cumulative total of 120
percent of the payment amount for 15 months of renting a nebulizer.
If the beneficiary needs a nebulizer for more than 15 months, and
continues to rent it, Medicare makes no further payment for the
equipment because the equipment has already been paid for. Medicare
does continue to pay for maintenance and servicing of the nebulizer, as
well as the inhalation drugs, but the supplier retains title to the
equipment.
During the 10th month of continuous rental of a nebulizer, the
supplier is required to offer the beneficiary a purchase option, and if
the beneficiary accepts the offer and exercises the

[[Page 47547]]

purchase option, the supplier transfers title to the nebulizer in the
13th month. In this case, Medicare would make its final monthly rental
payment in the 13th month, and the title then would transfer to the
beneficiary. About 3 percent of beneficiaries exercise the purchase
option.
In 2003, the average Medicare monthly rental payment for nebulizers
was $19.07 for the first three months and $14.30 for the fourth through
fifteenth month. Thus, Medicare would pay $228.81 for a nebulizer if
the beneficiary's period of medical need were 15 months. There are
various types of nebulizers (compressor, ultrasonic, portable,
disposable) and nebulizer accessories (breathing circuits, air filters,
tubing extensions, mouthpieces, spare battery packs, DC adapters)
available. Internet prices for compressor nebulizers range from $50 to
$100, and prices for portable nebulizers range from $100 to $200,
depending on the specific features of the nebulizer. The Medicare
payment amount includes payment for delivery of the equipment.
(Shipping costs for nebulizers available for purchase on the Internet
range from free shipping up to $25).
b. Maintenance and Servicing of Nebulizers
Medicare Part B makes an additional separate payment to the
supplier for maintenance and servicing of the equipment (for parts and
labor not covered by the supplier's or manufacturer's warranty). For
nebulizers that are not purchased, but are used for more than 21
months, the servicing fee covers six-month periods beginning after the
21st month of use. As required by section 1834(a)(7) of the Act,
Medicare's payment for maintenance and servicing is equal to the lesser
of a reasonable and necessary maintenance and servicing fee, or 10
percent of the total purchase price of the equipment. For nebulizers
that are purchased, Medicare may make a payment to the supplier for any
necessary maintenance and servicing that is performed.
In 2003, the average service fee for nebulizers was $19.07 per six-
month period. Other than routine cleaning of the unit (that is,
cleaning and changing filters, cleaning and disinfecting nebulizers,
tubing, and mouthpieces), very little maintenance is required to
maintain a nebulizer's peak performance. There is usually no scheduled
maintenance for the nebulizer. Medicare pays for the usual frequency
for replacement of accessories. Maintenance kits and replacement parts
are available through online suppliers for approximately $5 to $15.
c. Inhalation Drugs
Medicare Part B pays for drugs that the nebulizer furnishes to a
beneficiary. Unlike nebulizers, inhalation drugs are not an explicit
benefit covered by statute. However, there was an administrative
decision made early in the program's history to cover inhalation drugs
as a supply so that the nebulizer could work. Without the inhalation
drugs, the nebulizer would not be effective for a beneficiary.
The two most common inhalation drugs used by beneficiaries are
albuterol sulfate (a beta-adrenergic bronchodilator) and ipratropium
bromide (an anticholinergic bronchodilator). A beneficiary may use one
or the other of these inhalation drugs, and they are frequently
prescribed together. Both albuterol sulfate and ipratropium bromide are
manufactured in powder form, but are generally liquefied and furnished
to beneficiaries in liquid form for use in a nebulizer. The beneficiary
may use a solution of one drug, or a combination of both drugs, in
addition to saline if necessary, with the nebulizer. The beneficiary
may mix the solution, or the supplier may furnish the drug in a pre-
mixed form (either commercially pre-mixed or pharmacy compounded). The
shelf life of these drugs is at least 18 to 24 months, and they do not
require any special storage arrangements such as refrigeration.
Medicare also pays for other inhalation drugs, such as budesonide
(an inhaled corticosteroid), which are used in conjunction with
albuterol sulfate and ipratropium bromide. These drugs can also be
administered using a nebulizer or an MDI.
d. Dispensing Fee
Medicare has paid a monthly $5 dispensing fee for each covered
inhalation drug or combination of drugs used in a nebulizer. The
dispensing fee is paid for each drug dispensed, not the number of unit
dose vials provided to the beneficiaries. Additionally, if two or more
drugs are combined in single unit dose vials, only one dispensing fee
will be paid per drug combination per month. A dispensing fee for
saline is not separately billable or payable. Inhalation drugs are the
only drugs for which Medicare Part B currently pays a separate
dispensing fee.
e. Beneficiary Training.
In 2003, CPT code 94664 was revised to include beneficiary training
by a physician or physician's staff regarding use of a nebulizer, MDI,
aerosol generator, or intermittent positive pressure breathing (IPPB)
machine. The narrative terminology for the code currently is--
Demonstration and/or evaluation of patient utilization of an aerosol
generator, nebulizer, metered dose inhaler or IPPB machine.'' The 2004
Medicare physician fee schedule payment for this service is $13.44.
This service has no physician work relative value units reflecting that
the training is typically performed by physician office staff. In 2004,
this service has 0.32 practice expense relative value units (RVUs) and
0.04 malpractice RVUs. Additionally, the supplier of the nebulizer,
under Sec. 424.57(c)(12), must ``document that it or another qualified
party has at an appropriate time, provided beneficiaries with necessary
information and instructions on how to use Medicare covered-items
safely and effectively.'' Beneficiary training by a physician or
physician's staff regarding use of a nebulizer would meet the
definition of ``another qualified party'' for purposes of this supplier
requirement.
3. Medicare Spending for Nebulizers and Inhalation Drugs
In 2003, Medicare spent about $1.6 billion for nebulizers and
inhalation drugs. This amount includes--
(a) About $130 million for nebulizers (both rental and purchase)
and nebulizer related accessories and supplies;
(b) About $13 million for servicing/maintenance fees;
(c) About $1.3 billion for albuterol sulfate and ipratropium
bromide and another $120 million for other inhalation drugs for a total
of approximately $1.4 billion. (This represents about 88 percent of
Medicare spending for inhalation therapy.);
(d) About $35.5 million for 7.1 million dispensing fees; and
(e) About $4.5 million for beneficiary training under CPT code
94664 (though this figure also includes training for other items as
well as nebulizers).
Medicare spending for inhalation drugs has grown rapidly.
Preliminary data indicate that between 2001 and 2003, Medicare spending
increased by 77 percent for albuterol sulfate and ipratropium bromide.
4. Inspector General and General Accounting Office Studies
The HHS IG issued 10 reports between February 1996 and January 2004
about Medicare payments for albuterol sulfate and ipratropium bromide
in excess of acquisition costs. In a report issued in September 2001,

[[Page 47548]]

the General Accounting Office (GAO) also concluded that Medicare
payment for these drugs was in excess of acquisition costs.
Table 1 of the Interim Final Rule regarding Changes to Medicare
Payment for Drugs and Physician Fee Schedule Payments for Calendar Year
2004, published in the January 7, 2004 Federal Register (69 FR 1084),
showed that the acquisition cost (averaging IG and GAO results) was 34
percent of the Average Wholesale Price (AWP) for ipratropium bromide
and 17 percent for albuterol sulfate. Prior to 2004, Medicare paid 95
percent of the AWP for each of these drugs and beneficiary coinsurance
was 20 percent of the Medicare payment amount. In the case of albuterol
sulfate, the beneficiary coinsurance was more than the actual
acquisition cost for the drug. During 2004, Medicare payment is 80
percent of the AWP for each of these drugs. Beginning with 2005,
Medicare payment will be 106 percent of the Average Sales Price (ASP).
The IG report issued in January 2004 again concluded that Medicare
payments were far in excess of acquisition costs for both albuterol
sulfate and ipratropium bromide. The IG found that the Medicare 2004
payment (and payment in prior years) was a multiple of the actual
acquisition costs for both drugs based on a comparison to the median
price that the drug was available through wholesalers/distributors and
group purchasing organizations (GPOs) and comparison to the
manufacturer-reported Wholesale Acquisition Cost (WAC).
5. Inhalation Drug Spread
In 2003, ipratropium bromide and albuterol sulfate were the third
and seventh largest drugs in terms of Medicare spending for carrier
paid drugs. The differences between Medicare's payment amount and
acquisition costs (that is, spread) for albuterol sulfate and
ipratropium bromide are among the largest spreads for drugs studied by
the IG and GAO. Based on the actual acquisition costs determined by IG
and GAO studies, in 2003, Medicare paid an estimated nearly $900
million in excess of acquisition costs for albuterol sulfate and
ipratropium bromide.
The IG and GAO findings of large differences between Medicare
payment amounts and acquisition costs for inhalation drugs provided the
foundation for Congressional enactment of section 305 of the MMA. This
section of the MMA sets Medicare payment for inhalation drugs at 106
percent of the ASP. (The Congressional Budget Office's November 20,
2003 pricing of the MMA estimated section 305 as having savings of $4.2
billion over 10 years.)
Suppliers argue that inhalation drug spread has allowed them to
fund activities related to care for beneficiaries with asthma or COPD
that otherwise do not have a Medicare Part B benefit category. These
other activities may include the following:
Respiratory therapists on staff or in networks available
on-call for home visits or telephone consultations.
On-call pharmacists.
Monthly calls to schedule medication refills.
Continuous education on disease states, including monthly
follow-ups.
24-hour support lines.
On-call and/or monthly home delivery of medication and
supplies.
Quality improvement programs.
6. Nebulizers vs. MDIs
Medicare Part B currently covers only one type of inhalation
therapy, nebulizers and inhalation drugs. Although Medicare Part B does
not cover MDIs and the inhalation drugs they furnish, the new Part D
benefit beginning in 2006 will cover these alternative hand-held
inhalation therapy devices (MDIs). In addition, the discount card and
$600 transitional assistance payment for low-income beneficiaries will
help seniors buy inhalers in 2004 and 2005, helping to bridge the gap
until 2006 when coverage begins.
MDIs are the quickest and easiest way to take inhalation medication
for most asthmatics and patients with COPD. The medication is propelled
directly into the lungs, allowing it to take effect more quickly, and
with fewer medication side effects. An MDI contains a specific number
of ``metered inhalations,'' and is made to deliver the prescribed
amount of medication for the labeled number of doses (typically 200
doses, which is 8 doses per day for 25 days). Inhalation accessory
devices, such as holding chambers and spacers, are used to improve the
direction and deposition of medication delivered by MDIs, making it
easier for beneficiaries to use an MDI and making the MDI more
effective in delivering the medicine to the lungs.
Since Medicare currently covers nebulizers and inhalation drugs,
but not alternative forms of inhalation therapy, there are strong
financial incentives toward use of the former compared to alternatives.
Our review of the literature over the past decade, including two meta-
analyses and over two dozen individual studies applicable to adults,
did not find that bronchodilators delivered via nebulizer were more
effective than when delivered via metered dose inhaler.
Since one delivery method is not clinically superior to the other,
when Medicare covers both methods of delivery of inhalation therapy,
the decision to prescribe one over the other will be made by the
physician and beneficiary based on beneficiary needs and preferences
consistent with applicable standards of medical practice. It would not
be unlikely for many beneficiaries to choose the convenience of MDIs
over nebulizers once the Medicare coverage imbalance is removed in
2006. Since MDIs are less expensive, very portable, and easier to use,
it is likely there will be a substantial shift of Medicare
beneficiaries from nebulizers to MDIs beginning in 2006, even absent
the Medicare payment changes for nebulizers and inhalation drugs in
2005.
Some claim that beneficiaries cannot use MDIs because they do not
have the dexterity to use them. Use of an MDI requires proper
inhalation techniques in order to receive the full benefit possible
from the amount of medication included in each dose. Spacers and
holding chambers extend the mouthpiece of the inhaler and increase the
air volume into which the medication is atomized, allowing more time
for the patient to breathe the medication and avoid misdirecting the
medication onto the soft tissues inside the mouth where it will have
little effect on lung function.
A nebulizer may also require a certain level of dexterity (that is,
operating, maintaining, and cleaning the nebulizer correctly). There
may also be beneficiaries who do not have the dexterity to use either
an MDI or nebulizer, which would require the availability of
alternative therapies, such as an IPPB machine to aid in the delivery
of aerosol medication by increasing the depth of breathing more than
the patient alone can achieve.
7. Payments Beginning in 2005 Including Provisions of the Proposed Rule
Our goal is to assure that each beneficiary who needs inhalation
therapy has access to the most appropriate medication and delivery
method. We expect that the combined changes to cover MDIs, adjust
payments for inhalation drugs, and provide for an appropriate
dispensing fee will improve beneficiary access and choice. We seek
comments about an appropriate amount for a dispensing fee that would
assure beneficiary access to inhalation medications provided through
nebulizers.

[[Page 47549]]

We believe that a dispensing fee is intended to cover a pharmacy's
activities to get inhalation drugs to beneficiaries. We seek data and
information on the additional services these pharmacies provide to
Medicare beneficiaries, the extent to which inhalation drugs can be
furnished without these additional services and the extent to which
such services are covered under Medicare. We are concerned about
significant shifts in beneficiary access to inhalation therapy prior to
implementation of the Part D drug benefit in light of the reduction in
Medicare payment for inhalation drugs beginning in 2005, and also seek
comments about whether the dispensing fee should include a somewhat
higher, transitional payment.
Below we discuss, changes in payment for inhalation drugs and
nebulizers beginning in 2005.
a. Nebulizers
Section 1834(a)(21) of the Act, as amended by section 302(c)(2) of
the MMA, requires a reduction in Medicare payment, beginning with 2005,
for specified items of DME, including nebulizers paid under code E0570.
The reduction is the difference in payment amounts under Medicare and
the median Federal Employees Health Benefits (FEHB) plan, as identified
in IG testimony before the Senate Committee of Appropriations on June
12, 2002. Other codes for nebulizers and related equipment are not
affected by the payment reduction.
b. Maintenance and Servicing of Nebulizers
Since the maintenance and servicing fee is equal to the first
month's rental payment, the maintenance and servicing fee for
nebulizers will also be reduced in 2005.
c. Inhalation Drugs
As discussed in the ASP payment section of this proposed rule, for
the first quarter of 2005, the Medicare payment at ASP plus 6 percent
is estimated to be $0.04 per milligram for albuterol sulfate and $0.30
per milligram for ipratropium bromide. While these figures represent
estimated reductions from 2004 payment levels of about 90 percent, they
are not necessarily the actual payment amounts for the first quarter of
2005. The actual payment amounts will be based on ASP's calculated from
the manufacturer ASP to be submitted for the third quarter of 2004.
Both albuterol sulfate and ipratropium bromide are generic drugs
that have multiple manufacturers. Since these ASPs are average figures
across all manufacturers, a pharmacy should be able to acquire
albuterol sulfate and ipratropium bromide at these prices. Moreover, to
the extent there is price variation among manufacturers, there will be
some manufacturers with lower prices than others. In this case, a
pharmacy might be able to obtain albuterol sulfate and ipratropium
bromide at a price below the average.
The Medicare payment amount includes a 6 percent add-on. Assuming
that ASP remains constant between the first and third quarters of 2004,
the 6 percent add-on would be about $1.00 for a typical month's supply
of 450 milligrams of albuterol sulfate and about $3.00 for a 90-day
supply. Similarly, the 6 percent add-on would be about $1.60 for a
typical month's supply of 93 milligrams of ipratropium bromide and
about $4.80 for a 90-day supply. Because albuterol sulfate and
ipratropium bromide are often prescribed together, Medicare payment at
106 percent of ASP would include, as additional payments above the
acquisition cost of the drugs, a total payment to the supplier of about
$2.60 for a 30-day supply and about $7.80 for a 90-day supply of both
drugs.
d. Dispensing Fee
Given the overall reduction in payment for inhalation drugs, we are
concerned about beneficiary access to these drugs. Because shipping,
handling, compounding, and other pharmacy activities would usually
exceed the 6 percent payment above the drug acquisition cost, we
believe that it is appropriate for Medicare to continue to pay a
separate dispensing fee to pharmacies that furnish inhalation drugs to
beneficiaries.
We propose to establish a separate dispensing fee for inhalation
drugs. This separate dispensing fee will be in addition to the
difference between the supplier's acquisition cost and the Medicare
payment for the drug. For example, if a supplier is acquiring albuterol
and ipratropium bromide for the average sales price, the supplier would
receive a separate dispensing fee amount plus their acquisition cost
plus $7.80 for a 90-day supply. The $7.80 is the amount included in the
payment for the drug itself since Medicare pays 6 percent above the
average sales price.
As noted above, Medicare has paid a $5 monthly dispensing fee for
each covered inhalation drug or combination of drugs used in a
nebulizer. Dispensing fees are paid by Medicaid and private insurers;
we seek information about these dispensing fees for inhalation drugs
and their applicability to Medicare. In addition, we seek comments
about an appropriate dispensing fee amount to cover the shipping,
handling, compounding, and other pharmacy activities required to get
these inhalation medications to Medicare beneficiaries. We seek data
and information that explains the direct labor and non-labor costs as
well as indirect costs of overhead for these pharmacy activities as
they relate to dispensing of inhalation drugs.
Consideration of dispensing fees needs to be viewed in the context
of several important changes and clarifications in Medicare policy and
billing requirements.
First, we are proposing to allow a prescription for inhalation
drugs covering a 90-day period to be written by a physician and filled
by a pharmacy. Current guidelines are that a pharmacy generally should
not fill a prescription for inhalation drugs for more than a month's
supply for a beneficiary. We believe that this requirement needs
revision in the case of inhalation drugs for two key reasons. Most
beneficiaries who use inhalation drugs use them for extended periods of
time and often use them for the rest of their lives. In addition, we
understand that many inhalation drugs are delivered to a beneficiary
through the mail. We understand that a mail-order prescription drug
model works well for a 90-day prescription. We believe that there will
be significant savings in shipping for a 90-day prescription rather
than a monthly prescription.
We would expect that reasonableness would govern filling a monthly
vs. a 90-day prescription with a physician writing and a pharmacy
filling a monthly or a 90-day prescription depending on the
circumstances of the beneficiary. For example, it would be reasonable
to expect that the first time a beneficiary receives a prescription for
a nebulizer and inhalation drugs that the prescription would be for a
month. Similarly, it would be reasonable to expect that refill
prescriptions for beneficiaries would be for a 90-day period. Carriers
would continue to assess claims for dispensed quantities greater than
what would be reasonable based on usual dosing guidelines. We would
expect that the bulk of prescriptions would be for 90-day periods.
Second, we recently revised the guidelines regarding the time frame
for delivery of refills of DMEPOS products to occur no sooner than
``approximately 5 days prior to the end of the usage for the current
product''. As previously noted, inhalation drugs are often furnished to
a beneficiary by mail. It has

[[Page 47550]]

been suggested that Medicare guidelines for refill prescriptions
allowed too short of a window between shipping the next month's
prescription and the end of the current month. It was argued that as a
result, a pharmacy ``effectively'' had to ship the product to a
beneficiary using an overnight delivery service.
On January 2, 2004, we revised the guidelines (effective February
2, 2004) regarding the time frame for subsequent deliveries of refills
of DMEPOS products to occur no sooner than ``approximately 5 days prior
to the end of the usage for the current product'' (see section 4.26.1
of Chapter 4--Benefit Integrity of the Medicare Program Integrity
Manual). This change allows shipping of inhalation drugs on
``approximately'' the 25th day of the month in the case of a month's
supply, and on ``approximately'' the 85th day in the case of a 90-day
supply. We emphasize the word ``approximately''; while we believe that
normal ground service shipping would allow delivery in 5 days, if there
were circumstances where ground service could not occur in 5 days, the
guideline would still be met if the shipment occurs in 6 or 7 days.
(``Days'' refers to business days or shipping days applicable to the
shipper, that is, a 6 day week in the case of the U.S. Postal
Service.). We believe that this change eliminates the need for
suppliers to use overnight shipping methods and allows shipping of
inhalation drugs by less expensive ground service.
Third, we understand that some pharmacies believe that Medicare has
a requirement that a pharmacy must obtain an original signed
prescription before each prescription is dispensed. The Program
Integrity Manual (section 5.1 of Chapter 5) addresses the ordering
requirement for DMEPOS items. The Manual indicates that most DMEPOS
items, including drugs, can be dispensed based on a verbal order from a
physician. The Manual further indicates that a written order must be
obtained before submitting a claim, but that such written order may be
faxed, photocopied, electronic or pen and ink. The order for inhalation
drugs must specify the name of the drug, the concentration (if
applicable), dosage, and frequency of administration. We hope that
clarification of this requirement would reduce a pharmacy's costs of
supplying covered inhalation drugs to Medicare beneficiaries to the
extent that pharmacies are currently applying an original signed
prescription requirement.
Fourth, Medicare regulations (Sec. 424.57) specify the
requirements a DMEPOS supplier must meet in order to receive payment
for a Medicare covered item. Section 424.57(c)(12) contains the proof
of delivery requirement and indicates that a ``supplier must be
responsible for the delivery of Medicare covered items to beneficiaries
and maintain proof of delivery.'' We recently revised the Program
Integrity Manual (section 4.26 of Chapter 4) to address proof of
delivery requirements for suppliers. As discussed in the Manual, the
burden of proving delivery is left to the supplier. The Manual provides
examples of the types of proof that are reasonable and acceptable, but
it does not provide an all-inclusive list. Other acceptable proof-of-
delivery methods may exist and may be employed by suppliers. This
documentation is normally only requested by the contractor when a
complaint is received that the item was not provided or received. The
documentation is necessary to investigate the allegation. We believe
that the current provisions on proof of delivery are adequate and
appropriate for inhalation drugs.
Fifth, in section IV.H (Assignment of Medicare Claims--Payment to
the Supplier) of this proposed rule, we propose to change current
regulations at Sec. 424.55 to eliminate the requirement that
beneficiaries assign claims to suppliers in situations where suppliers
are required by section 1842(o)(3) of the Act to accept assignment.
This change would eliminate the need for suppliers to have a signed
Assignment of Benefits (AOB) form from a beneficiary in order for
Medicare to make payment. Because such section of the Act requires
Medicare to make payment for drugs only on an assigned basis, this
change would eliminate a billing requirement for drugs, including
inhalation drugs. We believe that this change would reduce a pharmacy's
costs of supplying covered inhalation drugs to Medicare beneficiaries
to the extent that pharmacies are requiring a signed AOB form before
submitting a claim.
We believe that the amount of dispensing fee needs to be considered
in conjunction with--
(1) Our proposal to allow 90-day prescriptions;
(2) Our recent revision to allow the next month's refill
prescription to be shipped approximately 5 business days prior to the
end of usage for the product, that is, to allow shipping on the 25th of
the month for a month's supply, and shipping or 85th day in the case of
a 90-day period;
(3) Our policy clarification regarding signed original orders
before a prescription is filled;
(4) Our proof of delivery requirement revisions; and
(5) Our proposed change regarding the Assignment of Benefits form.
e. Beneficiary Training
Medicare Part B will continue to pay for beneficiary training by a
physician's staff regarding use of a nebulizer, MDI, aerosol generator,
or IPPB machine. Section 424.57(c)(12) specifies that ``The supplier
must document that it or another qualified party has at an appropriate
time, provided beneficiaries with necessary information and
instructions on how to use Medicare covered-items safely and
effectively.'' Beneficiary training by a physician or physician's staff
regarding use of a nebulizer would meet the definition of ``another
qualified party'' for purposes of this supplier requirement.

IV. Other Issues

A. Proposals Related to Therapy Services

1. Outpatient Therapy Services Performed ``Incident To'' Physicians'
Services
[If you choose to comment on issues in this section, please include the
caption ``Therapy--Incident To'' at the beginning of your comments.]

In last year's proposed rule, we requested comments on clarifying
that the personnel qualifications of therapists in home health settings
at Sec. 484.4 apply consistently to all therapy settings, including
the offices of physical and occupational therapists, physicians, and
nonphysician practitioners. We received comments from therapists,
physicians, nontherapist health care providers and their representative
organizations. After consideration of all comments, we now propose to
revise 42 CFR 410.26, 410.59, 410.60 and 410.62 to reflect that
physical therapy, occupational therapy, and speech-language pathology
services provided incident to a physician's professional services are
subject to certain limitations as described at section 1862(a)(20) of
the Act.
Regulations in 42 CFR 485.705 specify that, in almost all settings,
outpatient rehabilitative therapy services, (physical therapy (PT),
occupational therapy (OT), or speech-language pathology (SLP)) can be
furnished only by the following individuals meeting the qualifications
in Sec. 484.4: physical therapists, occupational therapists,
appropriately supervised physical therapist assistants, appropriately
supervised occupational therapy assistants, and speech-language
pathologists. Some States permit licensed physicians, physician
assistants, clinical nurse specialists, and nurse practitioners to
furnish PT, OT,

[[Page 47551]]

and SLP services also. Therapy services, and those who provide therapy
services, must also meet the standards and conditions as specified in
Medicare manuals.
Section 1862(a)(20) of the Act permits payment for therapy services
furnished incident to a physician's professional services only if the
practitioner meets the standards and conditions that would apply to
such therapy services if they were furnished by a therapist, with the
exception of the licensing requirement. We are proposing to amend the
regulations to include the statutory requirement that only individuals
meeting the existing qualification and training standards for
therapists (with the exception of licensure) consistent with Sec.
484.4 qualify to provide therapy services incident to physicians'
services.
Section 1862(a)(20) of the Act refers only to PT, OT, and SLP
services and not to any other type of therapy or service. This section
applies to services of the type described in section 1861(p), 1861(g)
and 1861(ll) of the Act; it does not, for example, apply to therapy
provided by qualified clinical psychologists. This section also does
not apply to services that are not covered either as therapy or as
evaluation and management services provided incident to a physician or
nonphysician practitioner such as recreational therapy, relaxation
therapy, athletic training, exercise physiology, kinesiology, or
massage therapy services.
2. Qualification Standards and Supervision Requirements in Therapy
Private Practice Settings
[If you choose to comment on issues in this section, please include the
caption ``Therapy Standards and Requirements'' at the beginning of your
comments.]

Section 1861(p) includes services furnished to individuals by
physical and occupational therapists meeting licensing and other
standards prescribed by the Secretary if the services meet the
necessary conditions for standards for health and safety. These
services include those furnished in the therapist's office or the
individual's home. By regulation, we have defined therapists under this
provision as physical or occupational therapists in private practice
(PTPPs and OTPPs).
Under Medicare Part B, outpatient therapy services, including
physical and occupational therapy services, are generally covered when
reasonable and necessary and when provided by physical and occupational
therapists meeting the qualifications set forth at Sec. 484.4.
Services provided by qualified therapy assistants, including physical
therapist assistants (PTAs) and occupational therapy assistants (OTAs),
may also be covered by Medicare when furnished under the specified
level of therapist supervision that is required for the setting in
which the services are provided (institutions and private practice
therapist offices). For PTPPs and OTPPs, the regulations specify that
the PT or OT meets only State licensure or certification standards and
do not currently refer to the professional qualification requirements
at Sec. 484.4.
Since 1999, when therapy services are provided by PTAs and OTAs in
the PT or OT private practice setting, the services must be personally
supervised by the PTPP or OTPP. In response to a requirement to report
to Congress on State standards for supervision of PTAs, CMS contracted
with the Urban Institute. The Urban Institute found that no State has
the strict, full-time ``personal'' supervision requirement, for any
setting, that Medicare places on PTAs in PTPPs (the report only
examined PTAs, which are more heavily regulated than OTAs). The Urban
Institute study found that only 7 States require any ``personal'' PTA
supervision by the PT, and all 7 required this level of supervision
only periodically, every 14, 30 or 60 days. The remaining States and
Washington, DC all have less stringent PTA supervision requirements,
including: 7 States and Washington, DC require full-time on-site
supervision, which corresponds to Medicare's direct supervision level;
16 States require the equivalent of Medicare's general supervision
level, which does not require the PT to be on site, but requires the PT
to be in contact via telecommunication; and another 16 States have
rules for periodic on-site PT visits. Most States permit a supervision
level similar to the Medicare ``general'' supervision requirement for
physical therapy services delivered in institutional settings. To
provide a consistent therapy assistant supervision policy, we are
proposing to revise the regulations at 410.59 and 410.60 to require
direct supervision of PTAs and OTAs when therapy services are provided
by PTs or OTs in private practice. This proposed change would no longer
require the personal presence of the PTPP or OTPP when their PTAs or
OTAs provide services in the private practice setting. We are
particularly interested in receiving comments regarding the proposed
PTA supervision change, from personal to direct, for the private
practice setting as whether or not it will have implications for the
quality of services provided, or for Medicare spending, either through
increased capacity to provide these services, or, alternatively, in the
event that the Congress again extends the moratorium on the
implementation of the limits on Medicare reimbursement for therapy
services imposed by the Balanced Budget Act of 1997.
Currently, the OTPP or PTPP regulations at Sec. 410.59(c) and
Sec. 410.60(c) do not reference qualification requirements for therapy
assistants, or other staff, working for PTs and OTs in private
practices. These qualification requirements were removed during 1998
rulemaking--when the coverage conditions requiring survey and
certification, at Sec. 486 Subpart D, for independently practicing PTs
and OTs were replaced with a simplified carrier enrollment process for
PTPPs and OTPPs. In our 1998 rule, at 63 FR 58868, we deleted the
references at Sec. 410.59 and Sec. 410.60 to the requirements at
Sec. 484.4 for PTs and OTs in private practice. At that time, the
qualifications for the staff of the PTPP and OTPP, including PTAs and
OTAs, were inadvertently removed because the coverage conditions at
Sec. 486 Subpart D were no longer applicable. In order to provide a
consistent policy regarding requirements for therapists and therapy
assistants, we are proposing to restore the qualifications by adding at
Sec. 410.59 and Sec. 410.60 the cross-reference to the qualifications
at Sec. 484.4 for privately practicing therapists and their therapy
assistants.
3. Other Technical Revisions
[If you choose to comment on issues in this section, please include the
caption ``Therapy Technical Revisions'' at the beginning of your
comments.]

We are making technical corrections to Sec. 410.62 to refer
consistently to speech-language pathology in this section (currently
the terms ``speech pathology'' and ``speech-language pathology'' are
used interchangeably) and are revising Sec. 410.62(a)(2)(iii) to
appropriately reference Sec. 410.61 (the current reference is to Sec.
410.63).
We are also removing subpart D, Conditions for Coverage: Outpatient
Physical Therapy Services Furnished by Physical Therapists, from part
486. Our November 1998 rule (63 FR 58868) discussed replacing this
subpart with a simplified carrier enrollment process for physical or
occupational therapists in private practice; however, the conforming
regulatory change to remove Subpart D was never made.
In addition, we are making a technical change at Sec. 484.4 to
correct the title ``physical therapy assistant'' to ``physical
therapist assistant.''

[[Page 47552]]

We are also amending Sec. 410.59(e) and Sec. 410.60(e) to include
a reference to the 2-year moratorium on the therapy caps established by
section 624 of the MMA.

B. Low Osmolar Contrast Media

[If you choose to comment on issues in this section, please include the
caption ``LOW OSMOLAR CONTRAST MEDIA'' at the beginning of your
comments.]

Contrast media are used to enhance the images produced by various
types of diagnostic radiological procedures. High osmolar contrast
media (HOCM), initially developed for use with these procedures, was
relatively inexpensive and payment for HOCM is subsumed in the payment
for the technical component of these procedures. When the more
expensive low osmolar contrast media (LOCM) were developed, estimates
showed that if all radiologic studies requiring contrast media were to
use LOCM, the costs to the Medicare program would have been
substantial. At that time, there were no definitive studies showing
that the benefits of using LOCM justified the very high additional
costs.
When the Medicare physician fee schedule was established, findings
of studies of patients receiving both types of contrast media had been
published, and the American College of Radiology (ACR) had adopted
criteria for the use of LOCM. We determined that the older, less
expensive contrast media (HOCM) could be used safely in a large
percentage of the Medicare population. However, we also decided that
separate payment for LOCM should be made for patients with certain
medical characteristics. We adopted the ACR criteria, with some
modification, as the basis for a policy that separate payments be made
for the use of LOCM in radiological procedures for patients meeting
certain criteria. These criteria were established at Sec. 414.38.
Specifically, separate payment is made for all intrathecal,
intravenous, and intra-arterial injections of LOCM, when it is used for
nonhospital patients who have one or more of the following five medical
conditions--
A history of previous adverse reactions to contrast media,
with the exception of a sensation of heat, flushing, or a single
episode of nausea or vomiting;
A history of asthma or allergy;
Significant cardiac dysfunction, including recent or
imminent cardiac decompensation, severe arrhythmias, unstable angina
pectoris, recent myocardial infarction, and pulmonary hypertension;
Generalized debilitation;
Sickle cell disease.

Under these conditions, we pay for LOCM, utilizing HCPCS codes A4644
through A4646. The payment amount for LOCM is calculated according to
the rules applicable to drugs provided incident to a physician's
service. The amount is reduced by 8 percent to account for the
allowance for contrast media already included in the technical
component of the service.

ACR has requested that we allow further separate payment for LOCM
by either expanding or eliminating the conditions. According to ACR,
use of LOCM has become the standard in most radiology practices and
benefits both physicians and patients. The benefits of uniform use of
LOCM would include--
The reduction of patient discomfort arising when HOCM is
used instead of LOCM; and
A reduction in physician resources now required to screen
for high-risk patients.

The price differential between HOCM and LOCM is also decreasing.
Universal use of LOCM, along with declining prices, will result in an
efficient, and safer alternative to HOCM.

We are proposing to revise the regulations at Sec. 414.38 to
eliminate the restrictive criteria for the payment of LOCM. This
proposal would make Medicare payment for LOCM consistent across
settings. Before January 1, 2003, the criteria in Sec. 414.38 were
also used to determine payment in the hospital setting. However, as
instructed in our Program Memorandum A-02-120, issued November 22,
2002, hospitals that are subject to the outpatient prospective payment
system (OPPS) no longer use these criteria. Instead, payment for both
ionic and non-ionic contrast media (including LOCM) is packaged into
the APC payment for the procedure. Under OPPS there is no longer a
payment difference between LOCM and other contrast materials.
Effective January 1, 2005, payment for LOCM would be made on the
basis of the average sales price plus six percent in accordance with
the standard methodology for drug pricing established by the MMA.
However, because the technical portions of radiology services are
currently valued in the nonphysician workpool and the CPEP inputs for
these services are not used in calculating payment, we will continue to
reduce payment for LOCM by eight percent to avoid any duplicate payment
for contrast media.

C. Payments for Physicians and Practitioners Managing Patients on
Dialysis

[If you choose to comment on issues in this section, please include the
caption ``MANAGING PATIENTS ON DIALYSIS'' at the beginning of your
comments.]
1. ESRD-Related Services Provided to Patients in Observation Settings
In response to comments received on billing procedures when the
patient is hospitalized during the month, we stated in the November 7,
2003 Federal Register (68 FR 63220) that the physician may bill the
code that reflects the number of visits during the month on days when
the patient was not in the hospital (either admitted as an inpatient or
in observation status). (We refer to Medicare's payment amount below as
the monthly capitation payment or MCP and the patient's normal
attending physician for ESRD-related services as the MCP physician).
In comments on the August 15, 2003 proposed rule, the Renal
Physicians Association (RPA) indicated that the observation area is not
an uncommon setting for outpatient face-to-face encounters to occur and
the observation area should be an approved site-of-service for
physician-dialysis patient encounters that count toward the MCP visit
total. We indicated in the final rule, however, that observation
services would not be counted as a visit under the MCP, but would be
paid separately. Prior to this, long-standing Medicare policy had
subsumed ESRD-related observation visits within the MCP.
Upon further review of this issue, we now agree with RPA's comment
and propose that ESRD-related visits provided to patients by the MCP
physician in an observation setting would be counted as visits for
purposes of billing the MCP codes.
2. Payment for Outpatient ESRD-Related Services for Partial Month
Scenarios
Since changing our payments for managing patients on dialysis, we
have received a number of comments from the nephrology community
requesting guidance on billing for outpatient ESRD-related services
provided to transient patients and in partial month scenarios where the
comprehensive visit may not have been furnished: for example, when the
patient is hospitalized during the month, or receives a kidney
transplant before the monthly comprehensive visit is furnished. To
address this issue, we propose to change the description of the G codes
for ESRD-related home dialysis services, less than full month, as

[[Page 47553]]

identified by G0324 through G0327. The new descriptor would include
other partial month scenarios, in addition to patients dialyzing at
home. The proposed descriptors for G0324 through G0327 are as follows:
``G0324: End stage renal disease (ESRD) related services for
dialysis less than a full month of service, per day; for patients under
two years of age.''
``G0325: End stage renal disease (ESRD) related services for
dialysis less than a full month of service, per day; for patients
between two and eleven years of age.''
``G0326: End stage renal disease (ESRD) related services for
dialysis less than a full month of service, per day; for patients
between twelve and nineteen years of age.''
``G0327: End stage renal disease (ESRD) related services for
dialysis less than a full month of service, per day; for patients
twenty years of age and over.''

The G codes G0324 through G0327 would be used to bill for
outpatient ESRD-related services provided in the following scenarios:
Transient patients--Patients traveling away from home
(less than full month);
Home Dialysis Patients (less than full month);
Partial month where there was one or more face-to-face
visits without the comprehensive visit and either the patient was
hospitalized before a complete assessment was furnished, dialysis
stopped due to death, or the patient had a transplant.
We believe that modifying the definition of the per diem G codes
(as identified by G0324 through G0327) would provide a consistent way
to bill for these partial month scenarios. However, this proposed
change to the descriptions of G0324 through G0327 is intended to
accommodate unusual circumstances when the outpatient ESRD-related
services would not be paid for under the MCP. Use of these per diem
codes would be limited to the scenarios listed above. Physicians who
have an on-going formal agreement with the MCP physician to provide
cursory visits during the month (for example ``rounding physicians'')
may not use the per diem codes.

Clarification on Billing for Transient Patients

For transient patients who are away from their home dialysis site,
and at another site for fewer than 30 consecutive days, the revised per
diem G codes (G0324 through G0327) would be billed by the physician or
practitioner responsible for the transient patient's ESRD-related care.
Only the physician or practitioner responsible for the traveling ESRD
patient's care would be permitted to bill for ESRD-related services
using the per diem G codes (G0324 through G0327).
If the transient patient is under the care of a physician or
practitioner other than his or her regular MCP physician for a complete
month, the physician or practitioner responsible for the transient
patient's ESRD-related care cannot bill using the per diem codes. In
this case the transient physician or practitioner treating the patient
must furnish a complete assessment and bill for ESRD-related services
under the MCP.
We are currently evaluating the criteria for defining a transient
patient and welcome comments on when a patient should be considered
transient.

D. Technical Revision

[If you choose to comment on issues in this section, please include the
caption ``TECHNICAL REVISION'' at the beginning of your comments.]
In Sec. 411.404, Medicare noncoverage of all obesity-related
services is used as an example. Since we are currently revising this
coverage policy, we are proposing to omit this example.

E. Diagnostic Psychological Tests

[If you choose to comment on issues in this section, please include the
caption ``DIAGNOSTIC PSYCHOLOGICAL TESTS'' at the beginning of your
comments.]
All diagnostic tests covered under section 1861(s)(3) of the Act
and payable under the physician fee schedule must be furnished under
the appropriate level of supervision by a physician as defined in
section 1861(r) of the Act. Additionally, the physician or nonphysician
practitioner who is treating the patient must order all diagnostic
tests in order for these tests to be considered reasonable and
necessary. These tests must be furnished under at least a general level
of physician supervision, that is, the test is furnished under the
physician's overall direction and control, but the physician's presence
is not required during the performance of the procedure.
However, certain diagnostic tests require either direct or personal
supervision. Direct supervision in the office setting means the
physician must be present in the office suite and immediately available
to furnish assistance and direction throughout the performance of the
procedure. It does not mean that the physician must be present in the
room when the procedure is performed. Personal supervision means the
physician must be in attendance in the room during the performance of
the procedure. Physician supervision at the specified level is required
throughout the performance of the test. Services furnished without the
required level of supervision are not reasonable and necessary, and
Medicare payment is precluded.
Section 410.32(b)(2)(iii) does permit an exception to these
physician supervision level requirements for clinical psychologists and
independently practicing psychologists (who are not clinical
psychologists) to personally perform diagnostic psychological testing
services without physician supervision. However, diagnostic
psychological tests performed by anyone other than a clinical
psychologist or independently practicing psychologist must be provided
under the general supervision of a physician as defined above.
Accordingly, clinical psychologists and independently practicing
psychologists have not been permitted to supervise others in the
administration of diagnostic psychological tests.
In Sec. 410.71(d), we require a clinical psychologist who
furnishes diagnostic, assessment, preventive, and therapeutic services
directly to individuals to hold a doctoral degree in psychology and to
be licensed or certified, on the basis of the doctoral degree in
psychology, by the State in which he or she practices. Program
instructions define an independently practicing psychologist as an
individual who is not a clinical psychologist and practices
independently of an institution, agency, or physician's office.
Examples include, but are not limited to, educational psychologists and
counseling psychologists. Any psychologist who is licensed or certified
to practice psychology in the State or jurisdiction where he or she is
furnishing services may qualify as an independent psychologist. It is
our understanding that all States, the District of Columbia, and Puerto
Rico license psychologists, but that some trust territories do not. In
the jurisdictions that do not issue licenses, an independently
practicing psychologist may be any practicing psychologist.
The American Psychological Association (APA) requested that we re-
evaluate our regulations regarding clinical psychologists' supervision
of diagnostic psychological tests. The APA also provided additional
information concerning provision of these services.
According to the APA, clinical psychologists generally have seven
years of graduate education in the study of human behavior and are
highly trained in the selection, administration,

[[Page 47554]]

and interpretation of psychological tests. In addition, according to
our payment data, the majority of health care practitioners, other than
physicians, performing psychological and neuropsychological testing
services under the central nervous system codes (CPT codes 96100
through 96117) are psychologists. We agree that clinical psychologists
possess core knowledge in test measurement and development,
psychometric theory, specialized psychological assessment techniques,
statistics, and the psychology of behavior that uniquely qualifies them
to direct test selection and interpret test data.
Therefore, we are proposing to change the supervision requirements
regarding who can supervise diagnostic psychological testing services.
Having ancillary staff supervised by clinical psychologists would
enable these practitioners with a higher level of expertise to oversee
psychological testing. It could also potentially relieve burdens on
physicians and healthcare facilities.
Additionally, in rural areas, we anticipate that permitting
psychologists to supervise diagnostic psychological testing services
would reduce delays in testing, diagnosis, and treatment that could
result from the unavailability of physicians to supervise the tests.
We propose that the appropriate level of supervision of diagnostic
psychological tests by clinical psychologists be general supervision,
the level required of physicians supervising the same services.
We are proposing to revise the regulations at Sec.
410.32(b)(2)(iii) to permit clinical psychologists to supervise the
performance of diagnostic psychological and neuropsychological testing
services. This proposal extends solely to clinical psychologists, and
it does not include independently practicing psychologists.

F. Care Plan Oversight

[If you choose to comment on issues in this section, please include the
caption ``CARE PLAN OVERSIGHT'' at the beginning of your comments.]
Care Plan Oversight (CPO) refers to the supervision of patients
under Medicare-covered home health or hospice care requiring complex
multi-disciplinary care modalities, including regular development and
review of plans of care. In the December 8, 1994 physician fee schedule
final rule (59 FR 63423), we established separate payment for CPO when
performed by physicians. The Balanced Budget Act (BBA) of 1997 extended
to nonphysician practitioners (NPPs) the right to receive payment for
Medicare physicians' services that fall within their scope of practice
under State law. In the November 1, 2000 final rule (65 FR 65407), we
created HCPCS codes G0181 and G0182 for reporting home health and
hospice CPO, respectively. We also clarified in that rule that services
of NPPs, practicing within the scope of State law applicable to their
services, could be billed as CPO services.
To certify a patient for home health services, a physician must
review the patient records and sign the plan of care. Our policy has
been that the physician who bills for CPO must be the same physician
who signs the plan of care and that, according to the statute,
(sections 1814(a)(2)(C) and 1835(a)(2)(A) of the Act), only a physician
can sign the plan of care for home health services. The effect of these
two provisions, both of which were in place prior to the BBA of 1997,
created a problem with respect to an NPP billing for CPO in the home
health setting.
We propose to revise Sec. 414.39 to clarify that NPPs can perform
home health CPO even though they cannot certify a patient for home
health services and sign the plan of care. However, we are also
proposing the conditions under which NPP services may be billed for
CPO; we established these conditions in consultation with our
contractor medical directors and CMS medical staff. In general, the
proposed conditions are meant to ensure that the NPP has seen and
examined the patient and that the appropriate and established
relationship exists between the physician who certifies the patient for
home health services and the NPP who will provide the home health CPO.

G. Assignment of Medicare Claims--Payment to the Supplier

[If you choose to comment on issues in this section, please include the
caption ``Assignment'' at the beginning of your comments.]
Current regulations require the beneficiary (or the person
authorized to request payment on the beneficiary's behalf) to assign a
claim to the supplier for an assignment to be effective. Over time,
however, the Act has been amended in various sections to require
suppliers, in some instances, to accept assignment for a Medicare
covered service regardless of whether or not the beneficiary actually
assigns the claim to the supplier. (This would include situations in
which services are furnished by a participating physician or supplier.)
In these instances, the requirement in our current regulations at Sec.
424.55(a) that the beneficiary assign the claim to the supplier is now
unnecessary. Therefore, we are proposing to create an exception to the
general rule in Sec. 424.55(a). New Sec. 424.55(c) would eliminate
the requirement that beneficiaries assign claims to suppliers in
situations where suppliers are required by statute to accept
assignment.
We believe the creation of this exception to the requirement for
beneficiaries to assign benefits in situations where benefits can by
statute only be paid on an assigned basis will reduce the paperwork
burden on beneficiaries and suppliers.

V. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995 (PRA), we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether OMB should approve an information
collection, section 3506(c)(2)(A) of the PRA requires that we solicit
comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
Section 410.16 requires the furnishing of education, counseling,
and referral services as part of an initial preventive physical
examination, a written plan for obtaining the appropriate screening and
other preventive services which are also covered as separate Medicare B
Part services.
The burden associated with this requirement is the time required of
the physician or practitioner to provide beneficiaries with education,
counseling, and referral services and to develop and provide a written
plan for obtaining screening and other preventive services.
While these requirements are subject to the PRA, we believe the
burden associated with these requirements to be reasonable and
customary business practice; therefore, the burden for this collection
requirement is exempt under 5 CFR 1320.3(b)(2)&(3).
Section 411.404 requires that written notice must be given to a
beneficiary, or someone acting on his or her behalf, that

[[Page 47555]]

the services were not covered because they did not meet Medicare
coverage guidelines.
Although this section is subject to the PRA, the burden associated
with this requirement is currently captured and accounted for in two
currently approved information collections under OMB numbers 0938-0566
and 0938-0781.
Sections 410.36 and 410.38 require that the physician must document
in the medical records the need for the prosthetic, orthotic, durable
medical equipment, and/or supplies being ordered.
While these information collection requirements are subject to the
PRA, the burden associated with them is exempt as defined in 5 CFR
1320.3(b)(2).
If you comment on these information collection and recordkeeping
requirements, please mail copies directly to the following:
Centers for Medicare & Medicaid Services, Office of Strategic
Operations and Regulatory Affairs, Attn: Melissa Musotto (CMS-1429-P),
Room C5-13-28, 7500 Security Boulevard, Baltimore, MD 21244-1850; and
Office of Information and Regulatory Affairs, Office of Management and
Budget, Room 10235, New Executive Office Building, Washington, DC
20503, Attn: Christopher Martin, CMS Desk Officer (CMS-1429-P),
Christopher_Martin@omb.eop.gov. FAX (202) 395-6974.

VI. Response to Comments

Because of the large number of public comments we normally receive
on Federal Register documents, we are not able to acknowledge or
respond to them individually. We will consider all comments we receive
by the date and time specified in the DATES section of this preamble,
and, when we proceed with a subsequent document, we will respond to the
comments in the preamble to that document.

VII. Regulatory Impact Analysis

[If you choose to comment on issues in this section, please include
the caption ``IMPACT'' at the beginning of your comments.]
We have examined the impact of this rule as required by Executive
Order 12866 (September 1993, Regulatory Planning and Review), the
Regulatory Flexibility Act (RFA) (September 16, 1980 Pub. L. 96-354),
section 1102(b) of the Social Security Act, the Unfunded Mandates
Reform Act of 1995 (Pub.L. 104-4), and Executive Order 13132.
Executive Order 12866 (as amended by Executive Order 13258, which
merely reassigns responsibilities of duties) directs agencies to assess
all costs and benefits of available regulatory alternatives and, when
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). A
regulatory impact analysis must be prepared for proposed rules with
economically significant effects (that is, a proposed rule that would
have an annual effect on the economy of $100 million or more in any 1
year, or would adversely affect in a material way the economy, a sector
of the economy, productivity, competition, jobs, the environment,
public health or safety, or State, local, or tribal governments or
communities). As indicated in more detail below, we estimate that the
physician fee schedule provisions included in this proposed rule will
redistribute more than $100 million in 1 year. We are also estimating
that the combined effect of several provisions of the MMA implemented
in this proposed rule will increase spending by more than $100 million.
Other MMA provisions implemented in this proposed rule are estimated to
reduce spending by more than $100 million. We are considering this
proposed rule to be economically significant because its provisions are
estimated to result in an increase, decrease or aggregate
redistribution of Medicare spending that will exceed $100 million.
Therefore, this proposed rule is a major rule and we have prepared a
regulatory impact analysis.
The RFA requires that we analyze regulatory options for small
businesses and other entities. We prepare a regulatory flexibility
analysis unless we certify that a rule would not have a significant
economic impact on a substantial number of small entities. The analysis
must include a justification concerning the reason action is being
taken, the kinds and number of small entities the rule affects, and an
explanation of any meaningful options that achieve the objectives with
less significant adverse economic impact on the small entities.
Section 1102(b) of the Act requires us to prepare a regulatory
impact analysis for any proposed rule that may have a significant
impact on the operations of a substantial number of small rural
hospitals. This