[Federal Register: November 15, 2004 (Volume 69, Number 219)]
[Rules and Regulations]               
[Page 66235-66915]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15no04-29]                         
 

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Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 403, 405, 410, et al.



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


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 403, 405, 410, 411, 414, 418, 424, 484, and 486

[CMS-1429-FC]
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: Final rule with comment period.

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SUMMARY: This final rule refines the resource-based practice expense 
relative value units (RVUs) and makes other changes to Medicare Part B 
payment policy. These 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 making these 
changes to ensure that our payment systems are updated to reflect 
changes in medical practice and the relative value of services.
    This final rule also addresses the following provisions of the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 
(Pub. L. 108-17) (MMA): coverage of an initial preventive physical 
examination; coverage of cardiovascular (CV) 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; and, payment for diagnostic mammograms, 
physicians' services associated with drug administration services and 
coverage of religious nonmedical health care institution items and 
services to the beneficiary's home.
    In addition, this rule updates the codes subject to the physician 
self-referral prohibition, discusses payment for set-up of portable x-
ray equipment, discusses the third five-year refinement of work RVUs, 
and solicits comments on potentially misvalued work RVUs.
    We are also finalizing the calendar year (CY) 2004 interim RVUs and 
are issuing interim RVUs for new and revised procedure codes for CY 
2005.
    As required by the statute, we are announcing that the physician 
fee schedule update for CY 2005 is 1.5 percent, the initial estimate 
for the sustainable growth rate for CY 2005 is 4.3, and the conversion 
factor for CY 2005 is $37.8975.

DATES: Effective Date: These regulations are effective on January 1, 
2005.
    Applicability Date: Section 623 of the MMA, that is, the case-mix 
portion of the revised composite payment methodology and the budget 
neutrality adjustment required by the MMA, is applicable on April 1, 
2005.
    Comment Date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on January 3, 2005.

ADDRESSES: In commenting, please refer to file code CMS-1429-FC. 
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-
FC, 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 800-743-3951 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

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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).
    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).
    Jean-Marie Moore (410) 786-3508 (for issues related to religious 
nonmedical health care institution services).
    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 the 
following issues: interim RVUs for selected procedure codes identified 
in Addendum C; zip code areas for Health Professional Shortage Areas 
(HPSAs); the coverage of religious nonmedical health care institution 
items and services to the beneficiary's home; the physician self 
referral designated health services listed in tables 20 and 21; the 
third five-year refinement of work RVUs for services furnished 
beginning January 1, 2007; and, potentially misvalued work RVUs for all 
services in the CY 2005 physician fee schedule. You can assist us by 
referencing the file code CMS-1429-FC 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, call 800-743-3951.
    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
    C. Components of the Fee Schedule Payment Amounts
    D. Development of the Relative Value System
II. Provisions of the Proposed Regulation Related to the Physician 
Fee Schedule
    A. Resource-Based Practice Expense Relative Value Units
    1. Resource-Based Practice Expense Legislation
    2. Current Methodology
    3. Practice Expense Proposals for Calendar Year 2005
    B. Geographic Practice Cost Indices (GPCIs)
    C. Malpractice 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
    O. Section 706 Coverage of Religious Nonmedical Health Care 
Institution Services Furnished in the Home
IV. Other Issues
    A. Provisions Related to Therapy Services
    1. Outpatient Therapy Services Performed ``Incident to'' 
Physicians' Services
    2. Qualification Standards and Supervision Requirements in 
Therapy Private Practice Settings
    3. Other Technical Revisions
    B. Low Osmolar Contrast Media
    C. Payments for Physicians and Practitioners Managing Patients 
on Dialysis
    D. Technical Revision--Sec.  411.404
    E. Diagnostic Psychological Tests
    F. Care Plan Oversight
    G. Assignment of Medicare Claims-Payment to the Supplier
    H. Additional Issues Raised by Commenters
V. Refinement of Relative Value Units for Calendar Year 2004 and 
Response to Public Comments on Interim Relative Value Units for 2003
VI. Five-Year Refinement of Relative Value Units VII. Update to the 
Codes for Physician Self-Referral Prohibition
VIII. Physician Fee Schedule Update for Calendar Year 2005
IX. Allowed Expenditures for Physicians' Services and the 
Sustainable Growth Rate
X. Anesthesia and Physician Fee Schedule Conversion Factors for CY 
2005
XI. Telehealth Originating Site Facility Fee Payment Amount Update
XII. Provisions of the Final Rule
XIII. Waiver of Proposed Rulemaking
XIV. Collection of Information Requirements

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XV. Response to Comments
XVI. 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 With Interim RVUs
Addendum D--2005 Geographic Practice Cost Indices by Medicare 
Carrier and Locality
Addendum E--2006 Geographic Practice Cost Indices by Medicare 
Carrier and Locality
Addendum F--Comparison of 2004 GAFs to 2005 GAFs
Addendum G--Comparison of 2004 GAFs to 2006 GAFs
Addendum H--Specialty Care PSA Zip Codes
Addendum I--2005 Primary Care HSPA Zip Codes
Addendum J--Primary Care PSA Zip Codes
Addendum K--Mental Health HPSA Zip Codes
Addendum L--Updated List of CPT/HCPCS Codes Used To Describe Certain 
Designated Health Services Under the Physician Self-Referral 
Provision

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

AAA Abdominal aortic aneurysm
AAFP American Academy of Family Physicians
AAKP American Association of Kidney Patients
AANA American Association of Nurse Anesthetists
ABI Ankle brachial index
ABN Advanced beneficiary notice
ACC American College of Cardiology
ACLA American Clinical Laboratory Association
ACP American College of Physicians
ACPM American College of Preventative Medicine
ACR American College of Radiology
ADLs Activities of daily living
AFROC Association of Freestanding Radiation Oncology Centers
AGS American Geriatric Society
AHA American Heart Association
AMA American Medical Association
AOA American Osteopathic Association
APA Administrative Procedures Act
APTA American Physical Therapy Association
ASA American Society of Anesthesiologists
ASCP American Society for Clinical Pathology
ASN American Society of Nephrology
ASP Average sales price
ASTRO American Society for Therapeutic Radiation Oncology
ATA American Telemedicine Association
AWP Average wholesale price
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
BMI Body mass index
BSA Body surface area
CAH Critical access hospital
CAP College of American Pathologists
CAPD Continuous ambulatory peritoneal dialysis
CCPD Continuous cycling peritoneal dialysis
CDC Centers for Disease Control and Prevention
CF Conversion factor
CFR Code of Federal Regulations
CLIA Clinical Laboratory Improvement Amendment
CMA California Medical Association
CMS Centers for Medicare & Medicaid Services
CNMs Certified nurse midwives
CNS Clinical nurse specialist
COPD Chronic obstructive pulmonary disease
CORF Comprehensive outpatient rehabilitation facilities
CPEP Clinical Practice Expert Panel
CPI Consumer Price Index
CPO Care Plan Oversight
CPT [Physicians'] Current Procedural Terminology [4th Edition, 2002, 
copyrighted by the American Medical Association]
CRNAs Certified Registered Nurse Anesthetists
CT Computed tomography
CV Cardiovascular
CY Calendar year
DEXA Dual energy x-ray absorptiometry
DHS Designated health services
DME Durable medical equipment
DMEPOS Durable medical equipment, prosthetics, orthotics, and 
supplies
DMERC Durable medical equipment regional carrier
DOI Departments of Insurance
DRE Digital rectal exam
DRG Diagnosis-related groups
DVT Deep venous thrombosis
EKG Electrocardiogram
E/M Evaluation and management
EPO Erythropoeitin
ESRD End-stage renal disease
FAX Facsimile
FMR Fair market rental
FQHC Federally qualified healthcare center
FR Federal Register
FY Fiscal year
GAF Geographic adjustment factor
GPCI Geographic practice cost index
GTT Glucose tolerance test
HBO Hyperbaric oxygen
HCPAC Health Care Professional Advisory Committee
HCPCS Healthcare Common Procedure Coding System
HHA Home health agency
HHS [Department of] Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996
HOCM High osmolar contrast media
HPSA Health professional shortage area
HRSA Health Resources and Services Administration
HsCRP high sensitivity C-reactive protein
HUD Housing and Urban Development
IDTFs Independent diagnostic testing facilities
IMRT Intensity modulated radiation therapy
IOM Internet Only Manual
IPD Intermittent peritoneal dialysis
IPPE Initial preventive physical examination
IPPS Inpatient prospective payment system
ISO Insurance Services Office
IVIG Intravenous immune globulin
JUAs Joint underwriting associations
KCP Kidney Care Partners
KECC Kidney Epidemiology and Cost Center
LCD Local coverage determination
LMRP Local medical review policies
LOCM Low osmolar contrast media
LUPA Low utilization payment adjustment
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
NCD National coverage determination
NCIPC National Center for Injury Prevention and Control
NDC National drug code
NIH National Institutes of Health
NP Nurse practitioner
NPP Nonphysician practitioners
OASIS Outcome and Assessment Information Set
OBRA Omnibus Budget Reconciliation Act
OIG Office of Inspector General
OMB Office of Management and Budget
OPPS Outpatient prospective payment system
OT Occupational therapy
OTA Occupational therapist assistant
OTPP Occupational therapists in private practice
PA Physician assistant
PAD Peripheral arterial disease
PC Professional component
PCF Patient compensation fund
PD Peritoneal dialysis
PEAC Practice Expense Advisory Committee
PET Positron emission tomography
PFS Physician Fee Schedule
PHSA Public Health Services Act
PIAA Physician Insurers Association of America
PIN Provider identification number
PLI Professional liability insurance
POS Prosthetics, orthotics and supplies
PPI Producer price index
PPS Prospective payment system
PRA Paperwork Reduction Act
PSA Physician scarcity area
PT Physical therapy
PTA Physical therapist assistant
PTPP Physical therapists in private practice
PVD Peripheral vascular disease
RFA Regulatory Flexibility Act

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RHC Rural health clinic
RHHI Regional home health intermediary
RIA Regulatory impact analysis
RN Registered nurse
RNHCI Religious nonmedical health care institution
RPA Renal Physicians Association
RT Respiratory therapy
RTs Respiratory therapists
RUC [AMA's Specialty Society] Relative [Value] Update Committee
RUCA Rural-Urban commuting area
RVU Relative value unit
SAF Standard analytic file
SCHIP State Child Health Insurance Program
SGR Sustainable growth rate
SHIPs State Health Insurance Assistance Programs
SIR Society for Interventional Radiology
SLP Speech language pathology
SMR Standardized mortality ratio
SMS [AMA's] Socioeconomic Monitoring System
SNF Skilled nursing facility
TC Technical component
UAF Update adjustment factor
URR Urea reduction ratios
USPSTF U.S. Preventive Services Task Force

I. Background

A. Legislative History

    Medicare has paid for physicians' services under section 1848 of 
the Social Security Act (the Act), ``Payment for Physicians' Services'' 
since January 1, 1992. The Act requires that payments under the fee 
schedule be based on national uniform relative value units (RVUs) 
reflecting 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 and the anesthesia conversion factor. 
Additionally, we 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 was -4.5 percent; that the initial estimate 
of the sustainable growth rate for CY 2004 was 7.4 percent; and that 
the conversion factor for CY 2004 was $35.1339.
    Subsequent to the November 7, 2003 final rule, the Congress enacted 
the Medicare Prescription Drug, Improvement, and Modernization Act of 
2003 (Pub. L. 108-17) (MMA). 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 Medicare 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. 
(Note: 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.

C. Components of the Fee Schedule Payment Amounts

    Under the formula set forth in section 1848(b)(1) of the Act, the 
payment amount for each service paid under the physician fee schedule 
is the product of three factors: (1) A nationally uniform relative 
value unit (RVU) for the service; (2) a geographic adjustment factor 
(GAF) for each physician fee schedule area; and (3) a nationally 
uniform conversion factor (CF) for the service. The CF converts the 
relative values into payment amounts.
    For each physician fee schedule service, there are three relative 
values: (1) An RVU for physician work; (2) an RVU for practice expense; 
and (3) an RVU for malpractice expense. For each of these components of 
the fee schedule, there is a geographic practice cost index (GPCI) for 
each fee schedule area. The GPCIs reflect the relative costs of 
practice expenses, malpractice insurance, and physician work in an area 
compared to the national average for each component.
    The general formula for calculating the Medicare fee schedule 
amount for a given service in a given fee schedule area can be 
expressed as:

Payment = [(RVU work x GPCI work) + (RVU practice expense x GPCI 
practice expense) + (RVU malpractice x GPCI malpractice)] x CF

    The CF for calendar year (CY) 2005 appears in section X. The RVUs 
for CY 2005 are in Addendum B. The GPCIs for CY 2005 can be found in 
Addendum D.
    Section 1848(e) of the Act requires us to develop GAFs for all 
physician fee schedule areas. The total GAF for a fee schedule area is 
equal to a weighted average of the individual GPCIs for each of the 
three components of the service. In accordance with the statute, 
however, the GAF for the physician's work reflects one-quarter of the 
relative cost of physician's work compared to the national average.

D. Development of the Relative Value System

1. Work Relative Value Units
    Approximately 7,500 codes represent services included in the 
physician fee schedule. The work RVUs established for the 
implementation of the fee schedule in January 1992 were developed with 
extensive input from the physician community. A research team at the 
Harvard School of Public Health developed the original work RVUs for 
most codes in a cooperative agreement with us. In constructing the 
vignettes for the original RVUs, Harvard worked with expert panels of 
physicians and obtained input from physicians from numerous 
specialties.
    The RVUs for radiology services were based on the American College 
of Radiology (ACR) relative value scale, which we integrated into the 
overall physician fee schedule. The RVUs for anesthesia services were 
based on RVUs from a uniform relative value guide. We established a 
separate CF for anesthesia services, and we continue to recognize

[[Page 66240]]

time as a factor in determining payment for these services. As a 
result, there is a separate payment system for anesthesia services.
2. Practice Expense and Malpractice Expense Relative Value Units
    Section 1848(c)(2)(C) of the Act requires that the practice expense 
and malpractice expense RVUs equal the product of the base allowed 
charges and the practice expense and malpractice percentages for the 
service. Base allowed charges are defined as the national average 
allowed charges for the service furnished during 1991, as estimated 
using the most recent data available. For most services, we used 1989 
charge data aged to reflect the 1991 payment rules, because those were 
the most recent data available for the 1992 fee schedule.
    Section 121 of the Social Security Act Amendments of 1994 (Pub. L. 
103-432), enacted on October 31, 1994, required us to develop a 
methodology for a resource-based system for determining practice 
expense RVUs for each physician's service. As amended by the Balanced 
Budget Act of 1997 (BBA) (Pub. L. 105-33), enacted on August 5, 1997, 
section 1848(c) required the new payment methodology to be phased in 
over 4 years, effective for services furnished in 1999, with resource-
based practice expense RVUs becoming fully effective in 2002. The BBA 
also required us to implement resource-based malpractice RVUs for 
services furnished beginning in 2000.

II. Provisions of the Proposed Rule Related to the Physician Fee 
Schedule

    In response to the publication of the August 5, 2004 proposed rule 
(69 FR 47488), we received approximately 9,302 comments. We received 
comments from individual physicians, health care workers, professional 
associations and societies, and beneficiaries. The majority of the 
comments addressed the proposals related to ``incident to'' therapy 
services, GPCI, diagnostic psychological testing, and drug issues 
including average sales price (ASP).
    The proposed rule discussed policies that affected the number of 
RVUs on which payment for certain services would be based. The proposed 
rule also discussed policies related to implementation of the MMA. RVU 
changes implemented through this final rule are subject to the $20 
million limitation on annual adjustments contained in section 
1848(c)(2)(B)(ii)(II) of the Act.
    After reviewing the comments and determining the policies we would 
implement, we have estimated the costs and savings of these policies 
and discuss in detail the effects of these changes in the Regulatory 
Impact Analysis in section XIV.
    For the convenience of the reader, the headings for the policy 
issues correspond to the headings used in the August 5, 2004 proposed 
rule. More detailed background information for each issue can be found 
in the August 5, 2004 proposed rule.

A. Resource-Based Practice Expense Relative Value Units

1. Resource-Based Practice Expense Legislation
    Section 121 of the Social Security Act Amendments of 1994 (Pub. L. 
103-432), enacted on October 31, 1994, amended section 
1848(c)(2)(C)(ii) of the Social Security Act (the 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) 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 physicians 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.

[[Page 66241]]

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 work pool. We have removed services from the 
nonphysician work pool if the requesting specialty predominates 
utilization of the service.
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 used 
in the calculation of the practice expense component of the physician 
fee schedule. 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 August 5, 2004 rule, we proposed to incorporate the CAP 
survey data into the practice expense methodology and to implement a 
change to the practice expense methodology to calculate the technical 
component RVUs for pathology services as the difference between the 
global and professional component RVUs. (This technical change was 
proposed in the June 28, 2002 Federal Register (67 FR 43849), but, at 
the specialty's request, we delayed implementation of this change for 
pathology services to permit evaluation of the combined effects of the 
use of the new survey data along with this technical change to the 
methodology.) We proposed to use the following practice expense per 
hour figures for specialty 69--Independent Laboratory.

[[Page 66242]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.487

    Comment: Specialty organizations representing clinical laboratories 
and pathologists expressed support for the use of the CAP supplemental 
survey data and urged us to finalize this proposal.
    Response: We will incorporate the CAP survey data into the practice 
expense methodology and implement the proposed change to the practice 
expense methodology to calculate the technical component RVUs for 
pathology services as the difference between the global and 
professional component RVUs.
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 recommended that we accept the data from 
the ACC and the ACR, but indicated that the survey from ASTRO did not 
meet the precision criteria established for supplemental surveys and, 
thus, did not recommend using the ASTRO survey results at this time. We 
agreed with these recommendations. However, as explained in the August 
5, 2004 proposed rule, the ACR and the ACC requested 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. We agreed with these requests and proposed delaying use of these 
supplemental surveys until issues related to the nonphysician work pool 
can be addressed.
    Comment: The ACR expressed appreciation for our acceptance of the 
supplemental data and for our proposal to delay implementation until 
next year, as they had requested, to allow further time to examine the 
issue of the nonphysician work pool. The Society for Interventional 
Radiology (SIR) also expressed support for the use of the ACR data and 
the delay in implementation.
    Response: We look forward to working with these and other 
specialties as we seek a permanent solution to practice expense issues 
associated with the nonphysician work pool.
    Comment: ASTRO stated that they appreciate the opportunity to 
submit data and, that they understand we will not be using the data in 
2005. ASTRO further commented that, due to the specific practice 
patterns and practice environment of radiation oncology, new data, 
regardless of the response rate, may not meet the criteria. ASTRO 
further stated that they will continue to work with CMS and with the 
Lewin Group as this issue is analyzed. The Association of Freestanding 
Radiation Oncology Centers (AFROC) expressed concern that freestanding 
centers that have higher costs than hospital-based centers were 
underrepresented by the ASTRO survey. They also expressed concern about 
the reference in the Lewin Group report to crosswalking radiation 
oncology costs from another specialty. In addition, AFROC argued that 
we should not average costs associated with freestanding centers with 
those that are hospital-based, because the costs would be understated. 
They urged us to ensure that any assumption regarding 
representativeness of any survey data is justified.
    Response: We will take these comments into consideration as we 
continue to work with these groups concerning the supplemental survey 
data. We currently have no plans to propose a practice expense 
crosswalk for radiation oncology.
    Comment: The ACC expressed appreciation that we are not eliminating 
the nonphysician workpool until methodologic issues are addressed. 
While they support the delay in implementing their supplemental survey 
data, they believe that the contractor's suggestion that the ACC survey 
data could be blended with the existing SMS survey data is invalid for 
two reasons: (1) The suggestion that similar changes to physician 
practice (for example, increased use of technology) may have occurred 
throughout all physician services is an unfounded speculation because 
few other specialties are as technologically driven as cardiology; and 
(2) other supplemental data has not been blended and all specialties 
must be treated consistently.
    Response: We will take these comments into consideration as part of 
the evaluation and discussion of the cardiology survey data in next 
year's proposed rule.
    Comment: The American Urological Association requested that, as we 
explore alternate sources of data and consider how to incorporate new 
practice expense data into the methodology, we find a way to 
incorporate recently collected specialty supplemental data into the new 
efforts. They also requested that we clarify whether we would apply the 
budget neutrality exemption to any increases in drug administration PE 
RVUs that result from the use of urology survey data that will be 
submitted under the supplemental survey process.
    Response: We anticipate that we would incorporate all accepted 
supplemental survey data into any comprehensive changes to the 
nonphysician work pool.
    As we explained in the January 7, 2004 Federal Register (69 FR 1093 
through 1094), section 303(a)(1) of the MMA modifies section 
1848(c)(2)(B) of the Act to provide an exemption from the budget 
neutrality requirements in 2006 for further increases in the practice 
expense RVUs for drug administration that may result from using survey 
data from specialties meeting certain criteria. The survey must include 
expenses for the administration of drugs and biologicals and be 
submitted by a specialty that receives more than 40 percent of its 2002 
Medicare revenues from drugs. Urology received more than 40 percent of 
its 2002 Medicare revenues from drugs. Therefore, if we were to receive 
a practice expense survey of urologists by March 1, 2005

[[Page 66243]]

that included expenses for the administration of drugs and biologicals 
and the survey met the criteria we have established (and those of 
section 1848(c)(2)(I)(ii) of the Act), we would exempt the change in 
the practice expense RVUs for drug administration services from the 
budget neutrality requirements of section 1848(c)(2)(B) of the Act.

b. Practice Expense Advisory Committee (PEAC)

Recommendations on CPEP Inputs for 2005
     CPEP Refinement Process.
    In the August 5, 2004 proposed rule, we included the PEAC 
recommendations from meetings held in March and August 2003 and January 
and March 2004, which accounted for over 2,200 codes from many 
specialties. We also stated that future practice expense issues, 
including the refinement of the remaining codes not addressed by the 
PEAC, would be handled by the RUC.
    Comment: We received comments from the AMA that future practice 
expense issues, including the refinement of the remaining codes not 
addressed by the PEAC, would be handled by the RUC with the help of a 
new ad hoc committee, now termed the Practice Expense Review Committee 
(PERC), comprised of former PEAC members. The RUC also noted that their 
Practice Expense Subcommittee remains committed to reviewing 
improvements to the practice expense methodology.
    The AMA and the RUC, as well as the specialty society representing 
neurological surgeons, noted their appreciation of our continued 
efforts to improve the direct practice expense data and to establish a 
reasonable methodology for determining practice expense relative 
values.
    Response: We look forward to our continuing work with the AMA, the 
RUC and all the specialty societies on the refinement of the remaining 
codes and with ongoing practice expense issues.
    Comment: The National Association for the Support of Long Term Care 
expressed concern about the dissolution of the PEAC and requested that 
we require the RUC to expand its membership to include a broad array of 
providers who are reimbursed under the physician fee schedule.
    Response: Because the RUC is an independent committee, we are not 
in a position to set the requirements for RUC membership. However, we 
are confident that the RUC and the Health Care Professional Advisory 
Committee, which also sends practice expense recommendations directly 
to us, together represent two broad ranges of practitioners, both 
physician and nonphysician.
    Comment: A specialty society suggested that there should be a 
process for fixing minor errors that are identified outside of the 
refinement process. The commenter also suggested that there should be a 
system to address individual exceptions to PEAC standard packages.
    Response: If we have made errors, major or minor, in any part of 
our calculation of practice expense RVUs in this final rule, inform us 
as soon as possible so that we are able to correct them in the 
physician fee schedule correction notice. Any other revisions would 
have to be made in the next physician fee schedule rule. If a specialty 
society believes that a RUC decision is not appropriate, the society 
can always request that the decision be revisited or can discuss the 
issue with us at any time. For the concern with the standard packages 
adopted by the PEAC, it is our understanding that all presenters at the 
RUC have the opportunity to demonstrate that something other than the 
standard would be more appropriate.
     PEAC Recommendations.
    We proposed to adopt nearly all of the PEAC recommendations. 
However, we disagreed with the PEAC recommendation for clinical labor 
time for CPT code 99183, Physician attendance and supervision of 
hyperbaric oxygen therapy, per session, and proposed a total clinical 
labor time of 112 minutes for this service.
    Comment: Specialty societies representing interventional radiology 
and neurological surgeons, as well as the AMA, expressed appreciation 
for our acceptance of well over 2,000 PEAC refinements in this rule. 
However, the specialty society representing orthopaedic surgeons 
commented that some of our proposals appeared to be circumventing the 
PEAC process, in that we changed the PEAC recommendation for hyperbaric 
oxygen (HBO) therapy and proposed in-office inputs for two services 
rather than referring these to the RUC.
    Response: We appreciate the hard work and perseverance on the part 
of the PEAC and the specialty societies that produced the recommended 
refinements for so many services. In addition, we do not believe that 
we circumvented the PEAC process in any way. We have the greatest 
respect for the PEAC and RUC recommendations that we received. However, 
we do have the final responsibility for all payments made under the 
physician fee schedule, and this can lead to disagreement with a 
specific recommendation. The RUC itself has always demonstrated its 
understanding and respect for our responsibility in this regard. With 
regard to the two services that we priced in the office, we stated 
explicitly in the proposed rule that we were requesting that the RUC 
review the practice expense inputs.
    Comment: The specialty society representing family physicians 
disagreed with our proposed changes to the PEAC recommendations for the 
clinical labor time for CPT code 99183, Physician attendance and 
supervision of hyperbaric oxygen therapy, per session. The commenter 
contended that a physician providing this service would probably have 
multiple hyperbaric oxygen chambers; therefore, staff would not be in 
constant attendance. However, the specialty society representing 
podiatrists supported this change in clinical staff time.
    Response: Based on our concern that the PEAC recommendation of 20 
minutes of clinical staff time during the intra-service period 
undervalued the clinical staff time, we proposed increasing this time 
to 90 minutes in the proposed rule. This was, of course, subject to 
comment. We believe there is some merit to the claim that the clinical 
staff may be monitoring more than one chamber at a time. Therefore, we 
are adjusting the time for the intra-service period from the proposed 
90 minutes to 60 minutes in recognition of this point. We will continue 
our examination of this issue and entertain ongoing dialog with all 
interested organizations and individuals familiar with this service to 
assure the accuracy of the intra-service time.
    Comment: The Cardiac Event Monitoring Provider Group Coalition 
expressed concern about the PEAC recommendations that would 
substantially reduce the clinical staff time associated with cardiac 
monitoring services. Of particular concern to the Coalition was the 70 
percent reduction in time for CPT code 93271, the code for cardiac 
event monitoring, receipt of transmissions, and analysis. Although all 
these services are currently priced in the nonphysician work pool and 
this decrease in the staff times has no immediate impact, the commenter 
was concerned that, when the nonphysician work pool is eliminated, 
these services will be undervalued. The commenter also believed that 
the PEAC recommendations may not have reflected all the supplies and 
equipment utilized in these services and included a complete list of 
necessary supplies

[[Page 66244]]

and equipment. The American College of Cardiology (ACC) presented these 
services at the PEAC meeting and commented they had been unable to 
collect sufficient data so that the PEAC could make an appropriate 
recommendation.
    Response: It is clear from the Coalition and ACC comments that more 
information is needed in order to ensure that the appropriate practice 
expense inputs are assigned to these services in the event that they 
are removed from the nonphysician work pool. We would be glad to work 
with the Coalition and the specialty society so that they can make a 
new presentation to the RUC this coming year.
     Adjustments To Conform With PEAC Standards
    We also 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 proposed 
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 proposed to eliminate the 
discharge day 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 proposed to delete any extra 
clinical staff time for post-visit phone calls for 10 and 90-day global 
service because that time is already included in the time allotted for 
the visits.
    Comment: A specialty society representing family physicians 
supported the elimination of the discharge day management time assigned 
in the facility setting for all 0-day global services, as well as all 
the other adjustments we made to apply PEAC standards. However, several 
specialty societies representing gastroenterology and orthopaedics, as 
well as the American College of Physicians, did not agree with the 
deletion of the discharge day management time. These groups requested 
restoration of the six minutes allocated to the discharge day 
management for 0-day global services and argued that most 0-day 
services require as much staff time as do many 10-day global services 
performed in the outpatient setting. One of these commenters did not 
believe a rationale was provided for this change. Another commenter, 
although recommending that any future refinements take into account all 
of the PEAC standards, expressed concern regarding all of the above 
changes, suggesting that this could lead to additional anomalies and 
recommending that the revisions should be reviewed by the RUC.
    Response: The PEAC recommended that the discharge day management 
time apply only to 10-day and 90-day global services and we were 
complying with this recommendation. We also believe that this PEAC 
recommendation is reasonable; it is hard to imagine what tasks a 
physician's clinical staff back in the office is performing for a 
patient during the period that the patient is undergoing a same-day 
procedure in the hospital outpatient department. However, the point 
made about 10-day global procedures is pertinent. We would suggest that 
the RUC reconsider whether the discharge day management clinical staff 
time should apply only to services that are typically performed in the 
inpatient setting. We also believe that it was appropriate to apply the 
PEAC standards to codes that were not refined or that were refined 
before the standards were developed. The application of these standards 
is not only fair, but can also help to avoid the possible rank order 
anomalies cited by the commenter.

Methacholine Chloride

    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 society subsequent to receipt of the PEAC 
recommendations, we learned this is incorrect. For the esophageal 
motility study, CPT code 91011, we proposed to include edrophonium as 
the drug typically used in this procedure. For the gastric analysis 
study, CPT code 91052, we were unable to identify the single drug that 
is most typically used with this procedure. We requested that 
commenters provide us with information on the drug that is most 
typically used for CPT code 91052, including drug dosage and price, so 
that it could be included in the practice expense database.
    Comment: Several specialty societies representing allergists, 
pulmonologists and chest physicians, as well as the AMA, requested that 
the additional cost of methacholine be reflected in the RVUS for the 
bronchial challenge test, CPT code 95070. As an alternative, the 
specialty society representing allergists suggested that a HCPCS code 
could be created so that methacholine could be billed separately.
    In response to our request for information about the supply inputs 
for CPT codes 91011 and 91052, the American Gastroenterological 
Association (AGA) indicated that edrophonium may be an appropriate 
supply proxy for CPT code 91011, but, in practice, other agents are 
more commonly used. However, they provided no additional information 
regarding these other agents. AGA also stated that the most commonly 
used drug for CPT code 91052 is pentagastrin, but betazole or histamine 
may also be used. Again, they did not provide further specific 
information.
    Response: Because CPT code 95070 is valued in the nonphysician work 
pool, the PEAC's addition of methacholine to this procedure could not 
be captured by the practice expense RVUs. However, a J-code was 
established, J7674, Methacholine chloride administered as inhalation 
solution through nebulizer, per 1mg, so that this drug can be billed 
separately. Accordingly, we have deleted methacholine from the practice 
expense database.
    For CPT code 91011, we have retained the drug edrophonium, and our 
proposed price of $4.67 per ml, as a supply in the practice expense 
database. However, we were not able to include a price for pentagastrin 
in the supply practice expense database for CPT code 91052. We will be 
happy to work with the specialty societies involved with both of these 
procedures to obtain accurate drug pricing for the 2006 fee schedule.
     Nursing Facility and Home Visits.
    We proposed to adopt the direct practice expense input 
recommendations from the March 2003 PEAC meeting for CPT codes 99348 
and 99350, two E/M codes for home visits, as well as the March 2004 
PEAC recommendations for E/M codes for nursing home services (CPT codes 
99301 through 99316).
    Comment: A specialty group representing family physicians supported 
the acceptance of the PEAC recommendations for nursing facility visits, 
even though this resulted in a decrease for these services. The 
commenter stated that the decrease occurred because the original CPEP 
data was flawed and the clinical staff times were too high. The 
commenter also stated that the payments in the facility setting will 
increase for these services and that setting has the higher volume of 
visits. Other commenters representing long term care physicians, 
geriatricians and podiatrists expressed disappointment in these PEAC 
recommendations and stated that, while the PEAC did consider the views 
of long term care physicians, the PEAC failed to accept these views 
even though they were supported by data. These commenters believe the 
PEAC did not

[[Page 66245]]

recommend an appropriate increase based on a false assumption that the 
nursing home provides the staff. Another commenter contended that the 
new values do not adequately account for work performed by the 
physician's clinical staff. The commenter stated that the pre- and 
post-times for these codes are less than for the comparable office 
visit codes, even though it is clear that more clinical staff time is 
required for the nursing facility resident. One commenter suggested 
that these concerns would need to be addressed within the framework of 
the 5-year review. The specialty society representing homecare 
physicians also commented that, rather than challenging a flawed 
system, they will use the 5-year review process to have work and 
practice expense re-valuated for the home visit codes.
    Response: While sympathetic to the concerns expressed by the long-
term care physicians regarding the overall decrease in clinical staff 
time in the nursing facility E/M procedures, we believe the PEAC 
recommendations for these services to be reasonable. We also agree with 
commenters regarding the upcoming 5-year review process as a means to 
address the physician work component of these codes. To the extent that 
there is overlap between the physician time and the clinical labor 
practice expenses involved in a particular procedure, the 5-year review 
process can be utilized to address these issues. We encourage the home 
care physicians and the long-term care physicians to consider using the 
5-year review process for these codes.
     Suggested Corrections to the CPEP Data.
    Comment: The RUC and American Podiatric Medical Association 
identified a number of PEAC refinements from the August 2003 meeting 
that were not reflected in the practice expense database and asked that 
these be implemented. The RUC also asked us to correct the equipment 
times for all of the 90-day global services to correspond with the 
PEAC-refined clinical staff times for these codes.
    Response: We have made the recommended corrections to our practice 
expense database.
    Comment: The specialty society representing hematology noted the 
supply items missing from the practice expense database for CPT codes 
36514 through 36516 that had been included in the CMS-accepted PEAC 
refinements.
    Response: We regret the error. These items are incorporated into 
the practice expense database.
    Comment: The specialty society representing pediatrics as well as 
the RUC commented that the PEAC recommendations also included a 
recommendation for a change in the global period for CPT code 54150, 
Circumcision, using clamp or other device; newborn, from a 10-day 
global to an ``xxx'' designation, which would mean the global period 
does not apply. This issue was not discussed in the proposed rule and 
the commenters requested that this change be reflected in the final 
rule.
    Response: As stated by the commenters, this request was included in 
the PEAC recommendations but was inadvertently omitted from the 
proposed rule. We agree that the 10-day global period currently 
assigned to this procedure may not be appropriate because the physician 
performing the procedure most likely does not see the infant for a 
post-procedure visit. However, we believe that a 0-day global period 
rather than ``xxx'' should be assigned to this procedure. We generally 
use the ``xxx'' designation for diagnostic tests and no surgical 
procedure currently is designated as an ``xxx'' global service. We 
believe this will accomplish the same end because most any other 
service performed at the same time as the circumcision could be billed 
with the appropriate modifier. We are adjusting the practice expense 
database to delete any staff time, supplies and equipment associated 
with the post-procedure office visit.
    Comment: Specialty societies representing dermatology stated that 
there was an error in the nonfacility practice expense RVUS for the 
Mohs micrographic surgery service, CPT code 17307, due to the omission 
of clinical staff time from the practice expense database.
    Response: We have corrected the practice expense database to 
reflect the appropriate clinical staff time.
    Comment: We received comments from the American College of 
Radiology (ACR) and Society of Nuclear Medicine noting that some of the 
codes used by their specialty were omitted from the listing of PEAC-
refined codes that appeared in Addendum C in our proposed rule. They 
submitted a complete list of the codes that had gone through PEAC 
refinement, beginning at the first PEAC meeting in April 1999, and 
asked that we include these codes on the Addendum.
    Response: We appreciate the specialty societies bringing to our 
attention that some of their codes were omitted from Addendum C and we 
have reviewed the codes on their submitted list. Addendum C was meant 
to list only those codes that were refined in this year's rule, and 
thus, only listed those refined by the PEAC from March and August 2003 
and January and March 2004. However, it does appear that there is some 
confusion regarding what codes were refined during this period, 
particularly from the March 2004 meeting. We will work with all medical 
societies and the RUC to clarify the status of all the codes in 
question.
     Other Issues.
    Comment: The RUC requested that we publish practice expense RVUs 
for all Medicare noncovered services for which the RUC has recommended 
direct inputs. We also received a request from the American Academy of 
Pediatrics to publish work and practice expense RVUs for the noncovered 
nasal or oral immunization services (CPT codes 90473 and 90474) and the 
visual acuity test (CPT code 99173).
    Response: In the past, we have published the practice expense RVUs 
for only a small number of noncovered codes which are listed in our 
national payment files that can be accessed via our physician web page 
under ``Medicare Payment Systems'' as part of the public use files at 
http://www.cms.hhs.gov/physicians/. Because we have not yet established a 

consistent policy regarding the publication of RVUs for noncovered 
services, we will need to examine this issue further to carefully weigh 
the pros and cons of publishing these RVUs for noncovered services.
    Comment: The American Speech-Language Hearing Association (ASHA) 
and the American Academy of Audiology (AAA), expressed concern about 
the reduction of practice expense RVUs for CPT code 92547, Use of 
vertical electrodes (List separately in addition to code for primary 
procedure), which resulted after the PEAC refinement. The commenters 
asked for our assistance to clarify a CPT instruction regarding this 
procedure because they believe it prevents the multiple billings of CPT 
92547 in a given patient encounter.
    Response: While we are sympathetic to the concerns expressed by 
ASHA and AAA, we also want to note that CPT code descriptors and 
accompanying coding instructions are proprietary to CPT. We would 
encourage these organizations to discuss this issue directly with the 
CPT editorial committee.
    Comment: A specialty society representing vascular surgery 
expressed concern about the wide variations in practice expense RVUs 
that are sometimes derived under the current methodology. The commenter 
suggested that some outliers require additional focus to determine 
whether these are errors in the direct inputs or if they

[[Page 66246]]

reflect problems inherent in the methodology. According to the 
commenter, it would appear that some of the extreme variation is due to 
the high costs of certain disposable supplies in the office setting as 
well as high scaling factors. A few examples of outlier codes were 
provided. The commenter suggested that we consider an alternative 
methodology for payment of high-priced single-use items in the 
nonfacility setting.
    Response: We agree with the commenter that the issue raised is one 
worth study and analysis. Unfortunately, this is not a task that can be 
accomplished in time for discussion in this final rule. We will be very 
willing to work with the specialty society and with the Practice 
Expense Subcommittee of the RUC, as well as any other interested 
parties, to work further on this issue that will only be magnified as 
more complex procedures are moved into the office setting.
    Comment: A provider of radiology services questioned the reductions 
in practice expense for CPT code 77370, Special medical radiation 
physics consultation.
    Response: The practice expense RVUs for CPT code 77370 decreased by 
0.02 RVUs between last year's final rule and this year's proposed rule. 
This small decrease is due to the normal fluctuations resulting from 
updating our practice expense data.

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 
consider the useful life of the equipment in establishing an equipment 
cost per minute of use.
    We contracted with a consultant to assist in obtaining the current 
price for each equipment item in our CPEP database. The consultant was 
able to determine the current prices for most of the equipment inputs 
and 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 proposed 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.
    Also, we proposed to replace all surgical packs and trays in the 
practice expense database with the appropriate standardized packs that 
were recommended by the PEAC, either the basic instrument pack or the 
medium pack.
    The useful life for each equipment item was also updated as 
necessary, primarily based on the AHA's ``Estimated Useful Lives of 
Depreciable Hospital Assets'' (1998 edition). We noted in the August 5, 
2004 proposed rule that AHA would be publishing updated guidelines this 
summer and that we would reflect any updates in our final rule.
    In addition, we proposed the following database revisions:

Assignment of Equipment Categories

    We proposed that equipment be assigned to one of the following six 
categories: documentation, laboratory, scopes, radiology, furniture, 
rooms-lanes, and other equipment. These categories would also be used 
to establish a new numbering system for equipment that would more 
clearly identify them for practice expense purposes.

Consolidation and Standardization of Item Descriptions

    We proposed combining items that appeared to be duplicative. 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 
proposed to merge these two line items and reflect both prices in the 
price of the LEEP system.
    These changes were reflected in Addendum D of the proposed rule.
    Additionally, there were specific equipment items for which a 
source was not identified or for which pricing information was not 
found that were included in Table 2 of the August 5 proposed rule. 
Items that we proposed to delete from the database were also identified 
in this table. We requested that commenters, particularly the relevant 
specialty groups, provide us with the needed pricing information, 
including appropriate documentation. Also, we stated that if we were 
not able to obtain any verified pricing information for an item, we 
might eliminate it from the database.
    Comment: The Society of Nuclear Medicine agreed with the deletion 
of the current room designation for radiopharmaceutical area and 
designation of categories for equipment. However, the society 
recommended that the category designation of ``radiology'' be changed 
to ``imaging equipment'' and ``other equipment'' be changed to ``non-
imaging equipment'' to be inclusive of these modalities. The American 
College of Radiology also concurred with the elimination of the current 
room designation for radiopharmaceutical area.
    Response: We agree that the term ``imaging equipment'' rather than 
the term ``radiology'' more accurately reflects current practice and 
have changed the practice expense database accordingly. However, it 
would be inappropriate to change the ``other equipment'' category to 
``non-imaging equipment'' because there are items in other categories 
that would not be encompassed in the proposed title change.
    Comment: The Society of Nuclear Medicine supplied information on 
the equipment item E51076 with the requested documentation.
    Response: We have revised the practice expense database to reflect 
the information provided.
    Comment: The American Society for Therapeutic Radiology and 
Oncology (ASTRO) submitted information and the requested documentation 
for fifteen items, often supplying two or more pricing sources.
    Response: We greatly appreciate the information and have revised 
the practice expense database to reflect the information provided.
    Comment: Commenters representing manufacturers and providers 
expressed concern about the reduction in payment (9 percent) for 
external counterpulsation (ECP), G0166. The commenters questioned the 
proposed change made to the life of the ECP equipment, from seven to 
five years, used for this service. Commenters did not believe this was 
supported by the AHA information (which indicated that similar 
diagnostic cardiovascular equipment has an equipment life of five 
years) and requested that this timeframe be applied to the ECP 
equipment for this service. The American College of Cardiology also 
questioned the change to the ECP equipment life. The commenters also 
questioned the allocation for maintenance and indirect costs applied 
under the practice expense methodology

[[Page 66247]]

as well as the time allocated for this service. As a final point, some 
of the commenters requested that we adjust the work RVUs assigned to 
this G-code to that of an echocardiogram (CPT code 93307) and include 
it in the nonphysician work pool.
    Response: Based upon review of the information provided we have 
revised the equipment life to five years. The methodology used for the 
allocation for maintenance and indirect costs is consistent with our 
methodology. For the request to adjust the work RVUs for this service, 
we refer the commenters to section VI of this final rule where we are 
soliciting comments on services where the physician work may be 
misvalued.
    Comment: The College of American Pathologists provided information 
on items listed in table 2: the DNA image analyzer (ACIS), and image 
analyzer (CAS system) code E13652. They noted that the CAS system is no 
longer marketed and that the ACIS system would be used in its place. 
Thus, they provided documentation on the price for the ACIS system.
    Response: We appreciate the information and have made the necessary 
changes to the database.
    Comment: The American College of Cardiology (ACC) agreed with the 
pricing for the ambulatory blood pressure monitor, provided prices for 
the ECG signal averaging system (E55035), but provided no documentation 
for these prices. They stated that the echocardiography digital 
acquisition ultrasound referenced in table 2 was no longer in the 
marketplace and that a digital workstation was now typically used. They 
requested that an appropriate equipment code be available for this item 
and provided a price range for this item (although without the 
supporting documentation). ACC also recommended that the pacemaker 
programmer (E55013) be removed from the equipment list because it is 
provided at no cost to the physician. Removal of this item from the PE 
database was also supported by a manufacturer that commented on the 
rule.
    Response: We have removed the pacemaker programmer from the 
practice expense database. We will temporarily retain other items and 
prices for the 2005 physician fee schedule and request that ACC forward 
the documentation as soon as possible.
    Comment: The American College of Radiology (ACR) provided partial 
information for the CAD processor unit and software. ACR also submitted 
information regarding the computer workstation for MRA and the 
mammography reporting software, but with insufficient documentation. 
For the various equipment items ACR listed for the mammography room, 
updated information was provided for a few of the items. ACR noted that 
they would submit documentation for all outstanding pieces of equipment 
when it is available. ACR did not agree with the room price for MRI and 
CT that was referenced in Addendum D and requested an extension so that 
they can work with us to accurately price these items.
    Response: We will maintain current pricing for all equipment items 
and the mammography room on an interim basis, until sufficient 
documentation is provided.
    Comment: The American Ophthalmology Association (AOA) and American 
Optometric Association both supplied pricing information along with the 
requested documentation for the computer, VDT, and software (E71013) 
listed in table 2. AOA also provided pricing information for the 
ophthalmology drill listed in this table, indicating a cost of $57. 
They expressed their appreciation for the recategorization and 
standardization of descriptions for equipment and supplies.
    Response: We appreciate the documentation forwarded by these two 
organizations and have incorporated into the practice expense database 
the pricing information provided for the computer, VDT, and software. 
Because the ophthalmology drill is less than $500 (the standard 
established for equipment), we are removing it from the equipment list 
for the practice expense database.
    Comment: The American Gastroenterological Association (AGA) 
expressed concern about the reduction in RVUs for CPT code 91065, a 
breath hydrogen test. They believe that the newer equipment listed in 
the practice expense database does not reflect the analyzer that is 
typically used, which is more expensive, and noted that the costs for 
the reagents have also increased.
    Response: We are sympathetic to the concerns of the AGA regarding 
the typical equipment used for CPT code 91065 and would like to work 
with them to ascertain updated pricing information about the equipment 
most physicians utilize for this service. However, the majority of the 
decrease (76 percent) in practice expense RVUs for this procedure is 
due to the PEAC refinement for the clinical labor time that was reduced 
by nearly 50 percent.
    Comment: The American Academy of Sleep Medicine indicated that most 
typical CPAP/BiPAP remote unit is a bilevel positive airway pressure 
unit and provided documentation for the price of this item.
    Response: This price is reflected in the practice expense database.
    Comment: The Society for Vascular Surgery (SVS), Society for 
Vascular Ultrasound and Society of Diagnostic Medical Sonography all 
expressed appreciation for the refinement to the inputs that apply to 
vascular ultrasound services. However, the commenters requested that we 
incorporate the requested refinements for the other ancillary equipment 
present in a vascular ultrasound room into other similar procedures. 
SVS specifically listed the following CPT codes: 93875-9 and 93990.
    Response: In addition to the three new CPT codes for 
cerebrovascular arterial studies CPT 93890, 93892 and 93893, we have 
added the vascular ultrasound room to the codes indicated in the SVS 
comment noted above.
    Comment: The American Psychiatric Association provided 
documentation for the cost of the ECT machine and the American 
Psychological Association provided information on the neurobehavioral 
status exam and testing, as well as the biofeedback equipment listed in 
table 2, along with the requested documentation.
    Response: We appreciate this information. The practice expense 
database was revised to reflect this cost information.
    Comment: The American Society of Clinical Oncology requested that 
the biohazard hood be substituted for the ventilator and hood blower as 
a practice expense input for the chemotherapy codes.
    Response: We revised the database to reflect this change.
    Comment: American Academy of Neurology supplied information and the 
necessary documentation on several equipment items listed in table 2 
associated with neurology services.
    Response: We have made the revisions to the prices for the 
ambulatory EEG recorder (E54008), ambulatory review station (E54009), 
and portable digital EEG monitor based on the documentation provided. 
Based on the documentation provided, we note that the price for the 
ambulatory review station was substantially reduced ($44,950 to 
$7,950).
    Comment: The American Clinical Neurophysiology Society (ACNS) 
stated that the payment for CPT code 95819, an EEG service, was 
substantially reduced. The Society believes it is due to a price 
reduction for the EEG equipment (E54006) used in this service that was 
listed in Addendum D of the

[[Page 66248]]

proposed rule. The commenter indicated that the proposed price does not 
include the review station and software which is needed for this 
service and provided documentation for appropriately pricing this item.
    Response: Based on the documentation provided, we have changed, on 
an interim basis for the 2005 fee schedule, the price for this item and 
note that this equipment price is associated only with CPT code 95819. 
We would be happy to work with ACNS in order to resolve any issues 
surrounding the RVUs for CPT code 95819. Reviewing the direct inputs 
for this code, we note that the largest contributor to the reduction of 
practice expense RVUs is the PEAC's refinement of this code's supply 
items.
    Comment: The National Association for Medical Direction of 
Respiratory Care and the American College of Chest Physicians were in 
agreement with the proposed prices for equipment except for the pulse 
oximeter (including printer), E55003. The commenters referenced a price 
that is $83 more than that listed in the table, but provided no 
documentation.
    Response: We appreciate the comments from these organizations 
regarding the repricing of the equipment items in the practice expense 
database. We have retained our price of $1,207 for the pulse oximeter 
and note that it is an average from two different available sources.
    Comment: We received a comment from a consumer regarding the price 
of the electromagnetic therapy machine for HCPCS code G0329 with 
concerns about the low payment for this modality. While no 
documentation was submitted, the commenter noted that the cost for this 
equipment ranged from $25,000 to $35,000.
    Response: We appreciate the commenter's remarks about the price of 
the electromagnetic therapy equipment, Diapulse. We have retained our 
price of $25,000 in the practice expense database because we do not 
have documentation that any higher-priced equipment is typically used. 
Similar to other modalities used in rehabilitation, including those 
used in wound care, we note that this procedure reflects comparable 
practice expense values.
    Comment: Several specialty organizations questioned our 
substitution of the two standardized packs for previously PEAC-approved 
packs and trays, as discussed in our proposed rule. One specialty 
society suggested we consult with the AMA before proceeding on this 
point.
    Response: We uniformly applied the PEAC-approved values for the 
packs and trays to all packs and trays, regardless of whether the codes 
had previously been refined by the PEAC. To the extent that a specialty 
society feels that it was disadvantaged by this policy, we would 
encourage them to bring the specific codes that should be excluded from 
this policy to the newly formed PERC (formerly PEAC) at the next RUC 
meeting in February 2005.
    Comment: Several specialty organizations indicated that they were 
in the process of obtaining pricing information on equipment items and 
would provide it as soon as possible. One commenter also asked that we 
retain the items proposed for deletion as they are necessary in 
providing their services, but provided no documentation.
    Response: In the proposed rule, we noted that we might eliminate 
those items from the database for which documented pricing information 
was not received. Due to the number of outstanding equipment prices, 
and the number of societies that are underway in their search for this 
data, we have decided to extend the submission deadline. We would 
encourage specialty societies to submit price information soon to help 
ensure that it can be used to establish practice expense RVUs in next 
year's proposed rule.
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d. Miscellaneous Practice Expense Issues

     Pricing for Seldinger Needle.
    We proposed to average two prices of this supply item to reflect a 
cost of $5.175. We requested that, if commenters disagreed with this 
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.
    Comment: Commenters were in agreement with the proposed pricing of 
the seldinger needle.
    Response: We will use the proposed price of $5.175 for this supply 
item in the practice expense database.

[[Page 66255]]

     Hysteroscopic Endometrial Ablation.
    We proposed to assign, on an interim basis, the following direct 
practice expense inputs in the nonfacility setting for CPT code 58563, 
Hysteroscopy, surgical; with endometrial ablation. (Note: In the August 
5, 2004 proposed rule this code was erroneously identified as 56853, 
which does not exist.) We also stated we would request that the RUC 
review these inputs as part of the practice expense refinement process.
    + Clinical Staff: RN/LPN/MTA--72 minutes (18 pre-service and 54 
service)
    + Supplies: PEAC multispecialty visit supply package, 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 500-1000 ml (3), maxi-pad, mini-pad, 3-pack betadine swab (4), 
Monsel's solution (10 ml), lidocaine jelly (1000 ml), disposable 
speculum, spinal needle, 18-24 g needle, 20 ml syringe, bupivicaine 
0.25 percent (10 ml), 1 percent xylocaine (20 ml), cidex (10 ml), 
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.
    Comment: Commenters, including many individual practitioners, were 
supportive of this proposed change. The specialty society also stated 
that they plan to present the inputs for this service at the RUC 
meeting in February 2005
    Response: With the exception of the post incision care kit that we 
deleted because this procedure does not require an incision, we will 
finalize these inputs as proposed.
     Photopheresis.
    We proposed to assign, on an interim basis, the following 
nonfacility practice expense inputs for the photopheresis service, CPT 
code 36522:
    + 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.
    We also stated we would request that the RUC review these inputs.
    Comment: One commenter supplied information on practice expense 
inputs for this code and indicated that an oncology nurse should be 
used, instead of an RN, to perform the procedure. A specialty society 
also stated that they would be providing information on this service at 
the September RUC meeting.
    Response: We appreciate the information submitted by the 
commenters. This code was discussed at the September RUC meeting and 
recommended practice expense inputs for this service were provided to 
us. We do not agree with the RUC recommended clinical staff procedure 
(intra) time of 90 minutes. We believe that this time, which is half of 
the proposed intra time, does not accurately reflect the total time 
involved in performing this procedure. Our understanding is that the 
filtration rate and the procedures performed by the nurse for 
photopheresis are similar to those that are reflected in the selective 
apheresis services, CPT code 36516, with a PEAC-approved intra time of 
240 minutes. Based on this, and the absence of specialty representation 
at the RUC familiar with the process, we are assigning 180 minutes for 
the intra time, as proposed. We are also assigning the RN/LPN staff 
type to this procedure, because we believe it is similar to other 
apheresis procedures. We will continue our examination of this issue 
and entertain ongoing dialog with all interested organizations and 
individuals, including the AMA and the RUC, the industry, and those 
physicians and individuals familiar with the photopheresis procedure in 
order to assure the accuracy of the intra time.
     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 August 
5, 2004 proposed rule included Table 3 Proposed Practice Expense Supply 
Item Additions for 2005, which listed supply items added as a result of 
PEAC or RUC recommendations subsequent to last year's update of the 
supply items and the proposed associated prices that we will use in the 
practice expense calculation.
    We also identified certain supply items for which we were unable to 
verify the pricing information (see Table 4, Supply Items Needing 
Specialty Input for Pricing, in the August 5, 2004 proposed rule). We 
requested that commenters provide pricing information on these items 
along with documentation to support the recommended price. In addition, 
we also requested information on the specific contents of the listed 
kits, so that we do not duplicate any supply items.
    Comment: Several commenters representing providers of these 
services stated that table 3 incorrectly associated ``gold markers'' 
with the brachtherapy intracavity codes. They were all in agreement 
that these markers are typically used in external beam treatments and 
payment is associated with unlisted procedure codes and should be paid 
for at cost.
    Response: We have deleted the gold markers from CPT codes 77761-
77763 and removed this supply from the practice expense database.
    Comment: The American Urology Association noted that we should 
exclude the vasotomy kit from CPT codes 55200 and 55250.
    Response: We have deleted the vasotomy kit from CPT codes 55200 and 
55250.
    Comment: The American College of Chest Physicians agreed with 
pricing of items used in their practices in table 3 and stated that the 
bronchogram tray does not need to be included in the practice expense 
database, as the procedure is seldom performed and, when it is, the 
procedure is performed in a facility.
    Response: We have deleted the bronchogram tray from the practice 
expense database and corrected the direct inputs for CPT code 31708 
accordingly.
    Comment: We received comments from the American College of 
Cardiology (ACC) that included price quotes and names of sources for 
supply items listed on table 3.
    Response: Unfortunately, ACC did not include the requested 
sufficient documentation, such as invoices or catalog web page links. 
We have asked ACC to forward this pricing documentation to us as soon 
as possible because it will be required for supplies to remain valued 
in the practice expense database. In the interim, for the 2005 fee 
schedule, we will maintain the prices currently in the practice expense 
database for the following supplies:

[[Page 66256]]

blood pressure recording form at $0.31, pressure bag (infuser) 500cc or 
1000cc at $8.925, sterile, non-vented, tubing at $1.99.
    Comment: Noting that a $15 supply item, needle-wire for 
localization of lesions in the breast (used preoperatively in CPT codes 
19290 and 19291) was no longer used, a manufacturer requested that we 
replace this supply with an anchor-guide device valued at $245. The 
commenters also stated that this device is used in over 70 offices and 
imaging centers.
    Response: We appreciate the comments from the manufacturer. 
However, during last year's rulemaking process we repriced all of our 
supplies, and the needle-wire price of $15 was an average of prices 
from two different sources ($17 and $13). This price was proposed and 
accepted by the medical specialty societies that we depend on to verify 
typical items in our practice expense database. We have retained the 
$15 needle-wire for localization because we believe it is typically 
used for this procedure.
    The following table lists the items on which we requested input, 
the comments received, and the action taken.
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     Addition of Supply Item to CPT 88365, Tissue In Situ 
Hybridization.
    We proposed to add, on an interim basis, a DNA probe to the CPEP 
database for CPT 88365, tissue in situ hybridization, with the 
understanding that the inclusion of the item would be subject to 
forthcoming RUC review.

[[Page 66259]]

    Comment: Commenters were supportive of this proposal. The College 
of American Pathologists also encouraged us to include updated 
information on practice expense inputs from the September RUC meeting, 
while another commenter suggested that we run the information by the 
specialty society.
    Response: The direct practice expense inputs for this code and two 
other codes in the same family were discussed at the September RUC 
after a presentation made by the specialty society. We have reviewed 
and accepted the RUC recommendations, and these practice expense inputs 
will be included in the practice expense database.
     Ophthalmology Equipment.
    In cases where both the screening and exam lanes are included in 
the equipment list for the same ophthalmology service, we proposed to 
include only one lane because the patient could only be in one lane at 
a time. We proposed defaulting to the exam lane and, thus, we proposed 
deleting the screening lane from the practice expense inputs for these 
procedures. For the services where a lane change was made, time values 
were assigned to the exam lane in accordance with our established 
standard procedure.
    Comment: The American Academy of Ophthalmology requested that we 
specifically identify the codes for which we deleted the screening 
lane, so that they can ensure that the correct lane was deleted.
    Response: This information can be obtained by comparing the direct 
inputs in the practice expense database files for the 2004 and 2005 fee 
schedules that are posted on our Web site (http://www.cms.hhs.gov/physicians/pfs
). However, we would be happy to work with the specialty 

organization to verify the accuracy of the information.
     Parathyroid Imaging, CPT code 78070.
    Based on comments received from the RUC and the specialty society 
representing nuclear medicine, we proposed to crosswalk the charge-
based RVUs from CPT 78306, Bone and/or joint imaging; whole body, to 
CPT 78070, Parathyroid imaging.
    Comment: Several specialty societies expressed appreciation for 
this proposed change.
    Response: We will finalize our proposal and crosswalk the charge-
based RVUs from CPT code 78306 to CPT code 78070.
     Additional PE concerns.
    Comment: We received information from the American Academy of 
Ophthalmology that two biometry devices (a-scan ultrasonic biometry 
unit and an optical coherence biometer) were listed as equipment for 
the ophthalmic biometry service, CPT code 92136. Only the optical 
coherence biometer should be included for this code.
    Response: As requested by the specialty society, we have deleted 
the a-scan biometry unit from the equipment list for CPT code 92136.
    Comment: We received comments from manufacturers, specialty 
societies representing renal physicians and vascular surgeons, and 
individual providers questioning the decrease in nonfacility practice 
expense RVUS for CPT code 36870, Percutaneous thrombectomy, 
arteriovenous fistula, autogenous or nonautogenous graft (includes 
mechanical thrombus extraction and intra-graft thrombolysis. Some 
commenters believe this reduction occurred because the supplies listed 
in the database for this service reflect only one method of providing 
this service. While commenters acknowledged that the database includes 
the supplies used in approximately 50 percent of the instances this 
procedure is performed, the commenters claimed that other supplies may 
be used in the remaining occasions. Commenters requested that we add 
these other specific supplies to the database.
    Response: Because there are a variety of supplies and equipment 
that can be used in performing a service, under the practice expense 
methodology, the supplies and equipment that are used in determining 
payment are those that are most typical for the procedure. Although 
there may be alternative supplies used, the inputs in the database 
reflect what is typically used (which is acknowledged by the 
commenters) and thus we are not adding the requested supplies to the 
practice expense database. However, we did note that the list of 
equipment did not reflect the cost of the angiography room that is used 
during the procedure, and this has been added to our database for this 
code.
    Comment: Societies representing dermatologic specialties expressed 
concern about the reduction in practice expense RVUs for a photodynamic 
therapy service, CPT code 96567. The commenters believe that this 
reduction is due to the application of the dermatology scaling factor 
based on updated practice expense utilization and requested that this 
be reconsidered. These commenters also expressed appreciation that 
there is now a separate HCPCS code to bill for levulan that is needed 
for this procedure, but stated that there are two medical supplies that 
need to be included in the practice expense database: bacitracin, and a 
topical anesthetic cream.
    Response: The practice expense RVUs for photodynamic therapy 
decreased only slightly in this year's proposed rule due to the 
proposed repricing of equipment. The decrease referred to by the 
commenter occurred after the first year that the code was established. 
At that time we obtained the utilization data that demonstrated that 
dermatologists performed the service and we then applied the same 
scaling factors to the code that we do for all dermatology services. 
Therefore, the scaling factor we now apply is correct. We will add the 
requested amount of bacitracin to the supply list for the code. 
Unfortunately, the topical anesthetic requested is not in our database 
and the commenters did not include pricing information so we are not 
able to include the item in our practice expense calculation.
    Comment: A society representing interventional pain physicians 
expressed concern that the practice expense RVUs for CPT code 95990, 
Refilling and maintenance of implantable pump or reservoir for drug 
delivery, spinal (intrathecal, epidural) or brain (intraventricular), 
are understated when compared to the RVUs for CPT code 95991, the same 
service administered by a physician. According to the commenter, CPT 
code 95991 includes a total of 47 minutes of nonphysician labor and 37 
minutes of physician labor or total professional time of 84 minutes. 
This is the total time spent with the patient before, during and after 
the refill. The commenter requested that the number of minutes of 
direct labor for CPT code 95990 should be a minimum of 84 minutes, 
since the nonphysician practitioner would be performing all the 
services associated with CPT code 95991 that are performed by both the 
physician and clinical staff. In addition, the commenter stated that 
CPT code 95990 should also be assigned physician work RVUs because 
there is physician oversight of the service even when performed by 
clinical staff. Two other commenters stated that both CPT codes 95990 
and 95991 should be valued the same as the chemotherapy implanted pump 
refill service, CPT code 96530. The commenters state that this was the 
code originally used to report the above services, that CPT codes 95990 
and 95991 originally were assigned higher RVUs than CPT code 96530 and 
that the MMA adjustments that increased the payment for CPT code 96530 
should be applied to CPT codes 95990 and 95991.

[[Page 66260]]

    Response: The commenter is correct that the clinical staff times 
for CPT codes 95990 and 95991 are the same (50 minutes of clinical 
staff time), although the clinical staff is performing the procedure in 
one case and assisting the physician in the other. However, the 
assumption underlying these times is that, in the cases where it is 
necessary for the physician to personally perform the procedure, the 
nurse is assisting for the entire time. If this assumption is not 
correct, then the clinical staff time for CPT code 95991 is overstated. 
Because CPT codes 95990 and 95991 are not considered drug 
administration codes under section 303 of the MMA, we will not apply 
the adjustments made for CPT code 96530 to these services. Therefore, 
we will not be revising the staff time for either code at this time, 
but would suggest that the RUC look further at this issue. We would 
also suggest that the society bring CPT code 95990 to the 5-year 
review, if they wish to make the case that work RVUs should be 
assigned.
    Comment: The society representing interventional pain physicians 
questioned the ``professional component only'' designation we assigned 
to the codes for the analysis of an implanted intrathecal pump, CPT 
codes 62367 and 62368, and the subsequent low RVUs for these services. 
The commenter stated that if the payment is left as proposed, more 
physicians would stop offering intrathecal pumps to patients.
    Response: This was an inadvertent error on our part that we have 
corrected for the final rule. These services are physicians' services 
that do not have separate professional and technical components. We 
thank the commenter for pointing out this error.
    Comment: The Joint Council of Allergy, Asthma and Immunology 
expressed concern about the reduction in the proposed rule in practice 
expense RVUs for a number of allergy codes, in particular the venom 
therapy CPT codes, 95145 through 95149. The commenter stated that 
Medicare reimbursement for these services does not cover the 
physician's supply expense, due to the expensive venom antigens that 
are part of the service, and believes this is a result of the scaling 
factor being used.
    Response: We are sympathetic to the commenter's concern about the 
high cost of the venom antigens and the specialty's low scaling factor. 
We would be happy to work with JCAAI further to see if a remedy can be 
identified regarding this subset of the allergy codes.
    Comment: Two commenters stated that the practice expense RVUs for 
HCPCS code G0329, Electromagnetic Therapy for ulcers, were too low and 
supplied information on the supplies, equipment and clinical staff time 
for this service.
    Response: Based on the information provided by the commenters, we 
added diapulse asetips and chux to the supplies in the practice expense 
database for this service. We also increased the equipment time to 30 
minutes.
    Comment: We received comments from the North American Spine Society 
(NASS) stating that the specific needle used for CPT codes 22520 and 
22522, which was originally recommended by NASS, is the most expensive 
needle and may not be the most typical. The specialty noted that 
available needles range from $26 to $1,295, which represent the needle 
(termed vertebroplasty kit) in the practice expense database. NASS 
indicated that the specialties involved in performing these procedures 
are conducting a survey to determine the most commonly used needles and 
their costs.
    Response: We appreciate the comments from NASS and look forward to 
receiving the survey results. In the interim, we have averaged the 
needle costs for the range indicated above by the specialty and have 
entered this figure, $660.50, as a placeholder for the 2005 fee 
schedule. Because of the large disparity between the lowest and highest 
needle costs, it is not reasonable to consider $660.50 as a true 
average cost for this supply item. We will continue to work with the 
specialty organizations in order to ensure that the 2006 fee schedule 
practice expense database reflects the value for the most typical 
needle used in these procedures.
    Comment: We received comments from two medical societies with 
concerns about a decrease in practice expense RVUs for CPT code 95819, 
which is part of the EEG sleep study series of codes. These two 
organizations noted their willingness to bring this code to the 
February 2005 RUC meeting in order to rectify the direct practice 
expense inputs for this procedure.
    Response: We have reviewed the family of EEG sleep-study codes and 
believe that a rank order anomaly exists relating primarily to the 2004 
PEAC recommendation to delete the 25 reusable electrodes from CPT code 
95819. We support and encourage these organizations to bring the entire 
EEG family of codes to the February 2005 RUC to ensure that this rank 
order anomaly can be resolved and the correct direct inputs can be 
identified for these procedures.
    Comment: The Coalition for Advancement of Prosthetic Urology 
expressed concern about the continuing decline in practice expense RVUs 
for prosthetic urology procedures. They believe that this is due in 
part to the number of post service visits assigned to these services. 
They stated that information from a survey they conducted shows there 
are typically four to five post service visits rather than three as 
reflected in the database. The commenter also provided a copy of the 
survey information.
    Response: The number of post service visits for these services was 
established based on recommendations from the RUC or by using the 
Harvard data. If they believe that the information regarding the number 
of post service visits for specific procedures is incorrect, the 
Coalition must request that the codes be examined as part of the 5-year 
refinement of work RVUs. An explanation of this process and the 
information that must be provided is found in section VI. of this rule.

B. Geographic Practice Cost Indices (GPCIs)

    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 to 
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. We reviewed and revised the malpractice GPCIs as 
part of the November 7, 2003 (68 FR 63196) physician fee schedule final 
rule. We were unable to revise the work and practice expense GPCIs at 
the time of the publication of the November 2003 final rule because the 
U.S. Census data, upon which the work and practice expense GPCIs are 
based, were not yet available.

[[Page 66261]]

    In addition, section 412 of the MMA amended section 1848(e)(1) of 
the Act and established 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 is used for purposes of payment for services furnished on or 
after January 1, 2004 and before January 1, 2007. Section 602 of the 
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.
    In the August 5, 2004 proposed rule, we proposed to revise the work 
and practice expense GPCIs for 2005 through 2007 based on updated U.S. 
Census data and Department of Housing and Urban Development (HUD) fair 
market rental (FMR) data. The same data sources and methodology used 
for the development of the 2001 through 2003 GPCIs were used for the 
proposed 2005 through 2007 work and practice expense GPCIs.
    The relative respective weights for the 2004 work, practice expense 
and malpractice GPCIs, as well as the proposed 2005 through 2007 GPCI 
revisions, were derived using the same weights that were used in the 
Medicare Economic Index (MEI) revision discussed in the November 2003 
physician fee schedule final rule (68 FR 63245).
1. Work Geographic Practice Cost Indices
    As explained in the August 5, 2004 proposed rule, we used data from 
the 2000 decennial U.S. Census, by county, of seven professional 
occupations (architecture and engineering; computer, mathematical, and 
natural sciences; social scientists, social workers, lawyers; 
education, library, training; registered nurses; pharmacists; writers, 
artists, editors) in the development of the proposed work GPCIs. 
Physicians' wages are not included because Medicare payments are 
determinant of the physicians' earnings. Including physician wages in 
the physician work GPCI would, in effect, make the index dependent upon 
Medicare payments. Based on 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.
    The U.S. 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 by county 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 
used in previous updates to the GPCIs.
    The proposed work GPCIs reflected 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.
2. Practice Expense GPCIs
    As in the past, we proposed that the practice expense GPCI would be 
comprised of several factors that represent the major expenses incurred 
in operating a physician practice. 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. The specific factors included:
     Employee Wage Indices--The employee wage index is based on 
special tabulations of 2000 Census data and is 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 aggregated by 
county in the same manner as the data for the work GPCI.
     Office Rent Indices--The HUD FMR data for the residential 
rents were again used as the proxy for physician office rents as they 
are in the current practice expense GPCIs. The proposed 2005 through 
2007 practice expense GPCIs reflect the final fiscal year 2004 HUD FMR 
data. 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. 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 X 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 may 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 2005 
and 2006.
3. Fee Schedule Payments
    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 in the past, fee schedule RVUs are again 
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.
    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. Because the 
changes represented by the GPCIs could result in total payments either 
greater than or less than what would have been paid if the GPCIs were 
not updated, it is 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. 
Because the law requires that each individual component of the fee 
schedule--work, practice expense, and malpractice expense--be 
separately adjusted by its respective GPCI, we proposed to scale each 
of the GPCIs separately. To ensure budget neutrality prior to applying 
the MMA provisions, we have made the following adjustments:
     Decreased the proposed work GPCI by 0.9965;

[[Page 66262]]

     Decreased the proposed practice expense GPCI by 0.9930; 
and
     Increased the malpractice GPCIs that were published in the 
November 7, 2003 final rule by 1.0021.
    Because all geographic payment areas will 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 has been applied to all work GPCIs falling below 1.0. 
Additionally, the GPCIs for Alaska have been set to 1.67 in accordance 
with MMA.
    Comment: A specialty society representing family physicians 
recommended that we work with the Congress to eliminate the GPCIs or 
set them all at 1.00. The society stated that they understand the 
statutory requirement to apply the GPCIs, but that all geographic 
adjustment factors should be eliminated from the physician fee 
schedule, except for those designed to achieve a specific policy good, 
such as adjustment to encourage physicians to practice in underserved 
areas. The commenter contended that elimination of the GPCIs would have 
a positive effect on the availability of medical care to rural 
beneficiaries. Other commenters suggested that we should no longer 
apply the work GPCI to the work RVUs.
    We also received numerous comments on the subject of the source of 
the data we use in the development of the GPCIs. Commenters suggested 
that we find data sources other than Census Bureau data. They believe 
the census data become obsolete very quickly and want us to use data 
that reflect up-to-date prices for inputs. This would, they argue, make 
the GPCI values more realistic.
    A medical specialty group commented that the index is flawed 
because--
     It is based on the tenuous assumption that the relative 
differences in the prices of the input proxies accurately reflect 
relative changes in prices of corresponding physician practice cost 
components; and,
     It applies uniform weights to practice cost components, 
despite evidence of geographic variation in component shares.
    Several commenters had specific concerns about the proxies used for 
the work and practice expense GPCIs, for example--
     Using data for four employee classes to measure relative 
compensation differences for all physicians' office staff which does 
not reflect the changes in medical practice that have occurred since 
the index was developed;
     Using residential real estate prices to reflect relative 
differences in physicians' office costs; and
     Using nationally uniform prices for supplies, equipment, 
and other expenses.
    Another particular concern among commenters is the use of HUD 
apartment rental data as the source of costs for physicians' rents. 
Instead, they argue, we should find, or carry out, a national study of 
retail and business rents.
    Another commenter asserts that these indices have not been verified 
by peer-reviewed published research since they were instituted and that 
we should replace the indices with data from nationwide studies that 
validate and update actual cost of practice data.
    Response: As noted by a commenter, we are required by the Congress 
to adjust for geographic differences in the operational cost of 
physicians' practices by applying geographic price indices to each 
component of the Physician Fee Schedule. However, we also believe it 
appropriate in our resource based payment system to account for real 
differences in physicians' costs in different geographical areas. We 
share the concern about access to care for our rural beneficiaries and, 
in this rule, we are finalizing our proposals on payment adjustments to 
physicians in underserved areas through the HPSA Incentive Payment 
Program. For the commenters who object to the GPCI adjustment to the 
work RVUs, we would note that for 2005 and 2006 the floor for the work 
GPCI will be 1.00.
    With reference to the issue of the GPCI data source, we are always 
open to suggestions about possible data sources; however, we believe 
the most reliable source of national, comparable data at the county 
level is the Census Bureau. Other data sources that we have examined 
either fail to produce the data at the county level, cannot be compared 
nationally, or offer no means of comparability over time.
    We believe that the proxies, while not perfect, are the best tools 
available for the development of the GPCIs. For example, if we were to 
eliminate all proxies, we would have to collect actual physicians' 
office data from a sufficiently large sample in each locality to 
calculate the GPCIs. This would place a substantial burden on the 
office staff and would be prohibitively expensive. Also, the benefits 
from that approach would be uncertain.
    The question of applying uniform weights to practice components is 
an area where more research could lead to better information about the 
variation attributable to case mix and the availability of other health 
resources, input prices, and practice styles. However, it is important 
to note that much of the variation associated with case and specialty 
mix is accounted for by the varying RVUs for different services. 
However, we are open to exploring this issue.
    On the issue of which employee categories are included in the 
employee wage index component of the practice expense GPCI calculation, 
we included those that have been determined in the past to be most 
commonly present in a physician's private practice. We are considering 
the suggestion that we include a broader group of employment categories 
in the future.
    While we recognize that apartment rents are not a perfect proxy for 
physician office rents, there are no existing national studies that 
present reliable retail and business rentals data. We would welcome any 
nationally consistent data that could be used for this purpose.
    We noted in the proposed rule that we were unable to find any data 
sources that demonstrate price differences by geographic areas for 
medical equipment and supplies. Once again, however, we welcome any 
nationally consistent data for this purpose.
    We appreciate the concern expressed by the commenter who suggested 
our GPCI methodology has not been subjected to peer-review validation 
since its inception, but we are not aware of any currently available 
data that could replace our methodology. Furthermore, we believe the 
process of updating the GPCIs periodically through notice and comment 
rulemaking affords an opportunity for a thorough review of the GPCI 
calculation methodology.
    Comment: A member of a medical society suggested that we make the 
floor of 1.00 permanent for the work GPCI and incrementally increase 
both the practice expense GPCI and the professional liability insurance 
GPCI to 1.00 over the next ten years.
    Response: We have no authority to extend the floor of the work 
GPCI, or to create a 1.00 floor for the practice expense and 
professional liability insurance GPCIs. Section 1848(c)(1)(A) of the 
Act requires that the index reflect resource costs relative to the 
national average, indicating that, aside from the MMA provision 
establishing a floor on the work GPCI through 2006, localities with 
costs below the national average have GPCIs below 1.00.
    Comment: A specialty organization representing the long term care 
industry suggested that we phase in the new

[[Page 66263]]

GPCI values over a three-year period to minimize the impact of the 
changes.
    Response: We are required by section 1848(e)(1)(C) of the Act to 
review and adjust the GPCIs 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. We believe this phase-in appropriately balances any 
negative impacts of the changes with the positive impacts on those 
localities where the GPCIs increase.
4. Payment Localities
    As discussed in the August 5, 2004 proposed rule, we have 
considered, and are continuing to examine, alternatives to the 
composition of the current 89 Medicare physician payment localities to 
which the GPCIs are applied.
    While we have considered alternatives, we have been unable to 
establish 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. If, for example, we were to establish a 
policy that when adjacent county geographic indices exceeded a 
threshold amount the lower county could be moved to the higher county 
or that a separate locality could be created, redistributions would be 
caused within a State.
    Because there will be both winners and losers in any locality 
reconfiguration, the State medical associations should be the impetus 
behind these changes. 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.
    Comment: We received numerous comments from physicians and 
individuals, including members of the Congress, living in and around 
Santa Cruz County, California. Their comments uniformly expressed the 
opinion that Santa Cruz be taken out of the ``Rest of California'' 
payment locality and placed in a separate payment locality.
    Additionally, the California Medical Association (CMA) submitted a 
``placeholder'' proposal to move any county with a county-specific 
geographic adjustment factor (GAF) that is 5 percent greater than its 
locality GAF to its own individual county payment locality. Under their 
proposal, any reductions in payments to maintain budget neutrality in 
light of the higher payments to physicians in the counties that are 
moved into the new independent county localities would be divided 
equally among all payment localities within the State of California. 
Additionally, for 2005 and 2006, the GAFs in localities from which the 
high-cost counties are removed would not be reduced as a result of 
removing the counties.
    Response: We greatly appreciate the efforts of the CMA and many 
others toward addressing this difficult issue. We also recognize the 
concerns expressed by the residents of Santa Cruz County about the 
impact of the current payment disparities upon physicians in their 
community. Our consistent position has been that we will be responsive 
to requests for locality changes when there is a demonstrated consensus 
within the State medical association for the change. Due to the re-
distributive impacts of these types of changes, we believe this 
approach helps ensure the appropriateness of any such change.
    We are required, however, to publish the final 2005 GPCIs and GAFs 
in this rule, and we have applied the current definitions for all 
California localities.
    On October 21, 2004, the CMA Board of Trustees voted without 
objection to support the placeholder proposal submitted in the CMA's 
comment with the amendment to limit the time period to the years 2005 
through 2006. However, we have determined that we do not have the 
authority under section 1848(e) of the Act to reduce the GPCIs of some 
localities in a State to offset higher payments to other localities. 
Nonetheless, we are eager to work with CMA and its Congressional 
Representatives to resolve this difficult problem as quickly and fairly 
as possible.
    Comment: We received comments from physicians, individuals and the 
Texas Medical Association regarding locality payments. These commenters 
request that we regard all counties in a metropolitan statistical area 
(MSA) as being in a single payment locality. This would, they argue, 
equalize payments in those areas where growth has expanded city 
boundaries across county lines.
    Response: As noted above, we will be responsive to requests for 
locality changes when there is a demonstrated consensus within the 
State medical association for the change.

Result of Evaluation of Comments

    We will finalize the GPCIs as proposed.

C. Malpractice Relative Value Units (RVUs)

1. 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
     2003 Medicare payment data on allowed services and 
charges.
    As in the initial development of resource-based malpractice expense 
RVUs in the November 2, 1999 final rule, we proposed 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 proposed using actual 2001 and 2002 malpractice 
premium data and projected 2003 malpractice premium data for three 
reasons:
     These are the most current national claims-made premium 
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 used 
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 the following two reasons:
     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 (DOI). 
Because none of the State DOI had 2003 market share information at the 
time of this data collection, 2003 premium data were not usable; and
     The majority of private insurers were not amenable to 
releasing premium data to us. In the majority of instances, the private 
insurance companies would release their premium data only to the State 
Department of Insurance.
    Discussions with the industry led us to conclude that the primary 
determinants of malpractice liability costs remain physician specialty, 
level

[[Page 66264]]

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 collected 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). We 
calculated an average premium price (using 1996 through 1998 data) for 
all States except Kentucky, New Hampshire, New Mexico, and Washington, 
DC. Similarly, we calculated an average premium price for the 1999 
through 2001 period for all States except Kentucky, New Hampshire, New 
Mexico, and Washington, DC. We calculated the percentage change in 
these premium prices as the percent difference between the 1999 to 2001 
calculated average premium price and the 1996 to 1998 calculated 
average premium price. We then applied this percentage change 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 States 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. Alternative methods, such as linear extrapolation 
tended to yield more extreme values that were the result of 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 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. We use our 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. 
Although St. Paul Companies have recently terminated writing 
professional liability insurance policies at the time of this data 
collection they were still the largest and most nationally 
representative writer of professional liability insurance policies in 
the nation. The crosswalks for Medicare specialties to ISO codes and to 
the St. Paul risk classes used are reflected in Table 4.
    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 and 
assigned an ISO code and a risk class. These crosswalks are reflected 
in Table 5.
    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 to 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. The 
dominant specialty approach also fails to account for as much as 49 
percent of the utilization associated with a given procedure.

Specialty-Weighted Approach

    The approach that we adopted in the November 1999 final rule and 
proposed

[[Page 66265]]

to use for 2005 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. Under the proposed methodology, we--
     Compute a national average premium for each specialty. 
Insurance rating area malpractice premiums for each specialty are 
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 were 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. 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. See Table 6 for a display of the average premiums for 
the top 20 Medicare specialties;
     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. 
The risk factors used in the development of the resource-based 
malpractice RVUs are displayed in Table 7;
     Calculate malpractice RVUs for each code. Resource-based 
malpractice RVUs were calculated for each procedure. In order to 
calculate malpractice RVUs for each code, we identified 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 
welcome any suggestions at any time for alternative data sources to be 
used in determining risk-of-service.
    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. Nonphysicians, in this example, 
audiologists and nurses, respectively, usually furnish these services. 
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 proposed 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 proposed to retain the current 
charge-based malpractice RVUs for all services with zero work RVUs. We 
also solicited comments and suggestions for constructing resource-based 
malpractice RVUs for codes with no physician work.
     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 in this process 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 then multiplied by the frequency count for that 
procedure to determine the total resource-based malpractice RVUs for 
each procedure. The total resource-based malpractice RVUs for each 
procedure were summed for all procedures to determine the total fee 
schedule proposed resource-based malpractice RVUs. The total fee 
schedule proposed resource-based malpractice RVUs were compared to the 
total current resource-based malpractice RVUs. 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 were shown in Addendum 
B of the August 5, 2004 proposed rule. The values did not reflect any 
final budget-neutrality adjustment, which we stated would be made in 
the final rule based upon the more current Medicare claims data. The 
malpractice RVUs identified in this final rule did not require the 
application of a scaling factor to retain budget neutrality.
    Because of the differences in the sizes of the three fee schedule 
components, the implementation of the updated resource-based 
malpractice RVUs has 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.
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Comments and Responses

    We received public comments on several malpractice issues. The 
comments and our responses are stated below.
    Comment: Several comments were received that requested revisions to 
the data sources utilized in the development of resource-based 
malpractice RVUs. Specifically, commenters requested that we remove 
utilization for assistant-at-surgery claims from the calculation of 
resource-based malpractice RVUs because the utilization of assistant-
at-surgery services artificially lowers the average risk associated 
with surgical services. Additionally, we also received comments that 
raised questions related to the ISO crosswalks and resulting risk 
factors that we used.
    Response: We agree that assistants at surgery should not be 
reflected in the malpractice RVUs because they are not primarily 
responsible for performing the surgical procedures, and we are removing 
the assistant-at-surgery utilization, and associated risk factors, from 
the data that are used to calculate the resource-based malpractice 
RVUs. The inclusion of the lower assistant-at-surgery risk factors into 
the overall determination of some complex surgical services 
artificially lowers the average risk factor and resulting resource-
based malpractice RVUs of these services.
    Regarding the ISO Classifications and resulting risk factors that 
were applied to specialties, the majority of comments received did not 
offer substantive reasons or alternative methodologies for the proposed 
ISO crosswalks. We derived the ISO crosswalks, and resulting risk 
factors, based upon the review by both our contractor and CMS medical 
officers. Due to the lack of substantive alternatives in the comments 
received, we will retain the crosswalks that were proposed in the 
August 4, 2004 proposed rule (see Table 7) with the exception of 
orthopedic surgery and dermatology.
    Comment: Several commenters believed that the August 2004 proposed 
rule that established risk factors of 7.46 for orthopedic surgery with 
spinal and 8.06 for orthopedic surgery without spinal were 
counterintuitive and needed revision.
    Response: We agree with these comments and have revised the 
orthopedic surgery with spinal risk factor to reflect the risk factor 
identified in the rating manuals (8.89). In the proposed rule, the risk 
factors for orthopedic surgery with spinal and without spinal were 
taken from two separate sources (premium data and rating manuals, 
respectively) thus causing the anomalous result. See Table 7 for the 
revised orthopedic surgery risk factors.
    Comment: Two commenters, including the American College of 
Dermatology believe that the use of the higher risk class of major 
surgery is inappropriate for dermatological services as the typical 
dermatological practice does not encompass major surgery but instead 
focuses on minor surgery in the office setting.
    Response: We agree with these comments and will use the minor 
surgery and no-surgery risk classifications for dermatological 
services. See Table 7 for the revised dermatology risk factors. The 
impact of removing the assistant at surgery claims and revising the 
risk factor associated with orthopedic surgery with spinal is a 0.9 
percent increase for neurosurgery and a 0.4 percent increase for 
orthopedic surgery over the malpractice RVUs shown in proposed rule. 
The effect of replacing the major surgery risk factor with the minor 
surgery risk factor for dermatology is a 0.9 percent decrease in total 
payments relative to the proposed rule.
    Comment: One commenter states that the resource-based malpractice 
RVU methodology underestimates the cost of PLI for physicians who 
perform obstetric and gynecologic services. According to the commenter, 
eighty percent of OB/GYNs perform both obstetric and gynecologic 
services yet the risk factor for most services these physicians provide 
to Medicare beneficiaries is based on the much lower premiums paid by 
physicians who offer only gynecologic services.
    Response: Although obstetricians and gynecologists' malpractice 
premiums can be appreciably different, most Medicare OB/GYN services 
are gynecological. Therefore, all Medicare OB/GYN procedures will be 
assigned a gynecology risk factor except in those instances where the 
service provided is clearly obstetrical in nature. CPT codes in the 
range of 59000-59899 are clearly obstetrical services and use the 
obstetrics risk factor (11.30).
    Comment: One commenter felt that it was inappropriate to assign 
0.00 malpractice RVUs to services that have physician work and have 
historically had a small amount of malpractice RVUs associated with 
them.
    Response: We agree with this comment and will adjust these services 
in the final rule. All payable fee schedule services have some amount 
of PLI associated with their performance.
    Comment: One commenter requested that we consider the 
implementation of the resource-based malpractice expense RVUs interim 
until the agency has worked with the medical community to ensure that 
the data and methodology utilized to calculate the malpractice RVUs are 
appropriate.
    Response: We are continuing to work with the medical community to 
ensure that the methodology and data used to calculate the malpractice 
RVUs appropriately reflect the actual resource costs associated with 
professional liability insurance for physicians. Section 
1848(c)(2)(B)(i) of the Act states that the Secretary is required to 
review the relative values not less often than every 5 years. If 
substantive information becomes available subsequent to the publication 
of the final malpractice RVUs, the statute allows us flexibility to 
review that information for possible inclusion in future malpractice 
RVU updates.
    Comment: Several commenters requested that we use a methodology 
that would only account for the dominant specialty in the calculation 
of the service-specific resource-based malpractice RVUs. Commenters 
stated that a dominant specialty approach would be consistent with the 
``typical'' service approach that we use throughout the resource-based 
physician payment system. Commenters also feel that a dominant 
specialty approach would more appropriately reflect the actual premium 
resource costs associated with the performance of individual services.
    Response: We continue to believe that accounting for all 
specialties that perform a given service is the more appropriate and 
equitable methodology in establishing resource-based malpractice RVUs. 
Basing payment upon all specialties that perform a given service 
ensures that the actual professional liability insurance resource costs 
of all specialties are included in the calculation of the final 
malpractice RVUs. Using only the dominant specialty does not capture 
the true resource costs associated with a given service and under a 
relative value based system, results in the redistribution of RVUs 
based upon only partial data.
    The dominant specialty approach is particularly vulnerable for 
calculating resource-based malpractice RVUs in services that are multi-
disciplinary in nature. An example that illustrates the potentially 
distorting effect of the dominant specialty approach on multi-
disciplinary services is the specialty utilization associated with a 
level III established office visit. Although over 35 different 
specialties perform a significant number of these services, a dominant 
specialty approach would base the malpractice RVUs on

[[Page 66274]]

approximately 2 specialties. High risk specialties such as 
neurosurgery, thoracic surgery, general surgery, and obstetrics and 
gynecology, which account for a small percentage of the total 
utilization but a large amount of total dollars, would no longer factor 
into the calculation of the malpractice RVU for this service. These 
four specialties alone account for nearly $300 million of the total 
dollars associated with a level III established office visit. The 
effect of removing these four high-cost, high-risk specialties from the 
calculation of the malpractice RVUs for this service would be an 
overall decrease in the malpractice RVUs, because the calculation would 
be based upon lower-cost, lower-risk specialties.
    We disagree that a dominant specialty approach is consistent with 
the typical service approach used in the RUC survey process. 
Irrespective of the specialty performing a given service, we require 
that the typical service be the measurement tool for the calculation of 
final payments. The typical service approach utilized in the RUC survey 
process has never referred to the typical specialty performing a 
service, but instead to the typical type of service furnished. This 
typical service would encompass such things as the condition of the 
patient, the extent of the work, the staff needed to accomplish the 
service, and the respective resource inputs associated with the typical 
service.
    We will continue to work with the RUC PLI Workgroup to identify 
alternatives to the dominant specialty approach. One alternative that 
we are currently exploring with the RUC PLI Workgroup is removing 
aberrant data from low utilization services.
    Comment: One commenter suggested that we determine the exponential 
rate of growth in the PLI premium data from 2001 through 2003 to 
predict the 2004 premium data. This commenter believes that we should 
use only this predicted 2004 premium data in the calculation of 
resource-based malpractice RVUs.
    Response: We disagree with the commenter's recommendation that 
predicted 2004 professional liability insurance premium data be 
utilized in the calculation of resource-based malpractice RVUs. The 
data sources that are currently used in the calculation of the 2005 
resource-based malpractice RVUs consist of actual 2001 and 2002 premium 
data (when available) and projected 2003 premium data. Professional 
liability insurance has proven to be the most volatile data source that 
is used in the calculation of resource-based physician fee schedule 
RVUs. For this reason, we believe that it is inappropriate to use only 
one year of projected premium data.
    Comment: Various specialty organizations request that we work with 
the RUC's Professional Liability Insurance (PLI) Workgroup to ensure 
that the medical community has input into the refinement of the 
malpractice RVUs.
    Response: Over the course of the past year, we have been working 
with the RUC PLI Workgroup to solicit input on the methodology and data 
sources utilized to calculate resource-based malpractice RVUs. We 
continue to actively participate in the PLI Workgroup to keep both the 
workgroup and the various specialty organizations aware of our progress 
in the development and refinement of resource-based malpractice RVUs. 
We have forwarded all requested contractor reports, which outline both 
our methodology and data sources, to the RUC for review and comment. We 
agree with these comments and plan to continue our cooperative 
relationship with the RUC PLI Workgroup and various specialty 
organizations to ensure that the necessary specialty organizations are 
involved with both the premium collection efforts and the development 
and refinement of resource-based malpractice RVUs.
    Comment: Tail coverage is designed to cover any claims that may be 
made against a new employee for services furnished on behalf of his or 
her old employer during the time that he or she is employed by the new 
employer. Several commenters suggested that we incorporate the cost of 
tail coverage in the determination of PLI annual premium data.
    Response: Although we agree with the commenters that it might be 
desirable to use tail coverage premium data in addition to the annual 
premium data that are currently used in the revisions to resource-based 
malpractice RVUs, we have been unable to identify a nationally 
representative source of tail coverage premium data. We are continuing 
to work with the RUC PLI Workgroup, the AMA, and the various specialty 
organizations to identify a nationally representative source of tail 
coverage premium data for future rulemaking.
    Comment: One commenter recommended that professional liability 
insurance data for all specialties should be used rather than the data 
from the top 20 Medicare specialties.
    Response: Although it might be desirable to obtain premium data 
from every conceivable specialty in the practice of medicine, it is not 
possible to obtain this scope of data under the time constraints 
associated with collecting the most current premium data. In order to 
conduct surveys that collect the maximum amount of premium data from 
all geographic areas without being too intrusive to the State 
Departments of Insurance and private insurance companies, we chose to 
limit the scope of the data collection to the top 20 Medicare 
specialties. Further, utilizing PLI data from the top 20 Medicare 
specialties encompasses 80 percent of fee schedule services.
    Comment: Several commenters requested that we use data from the 
Physician Insurers Association of America (PIAA) in the development of 
resource-based malpractice RVUs. This commenter further requested that 
we provide concise requirements for those data collection efforts.
    Response: We did explore the use of data from PIAA in the 
development of resource-based malpractice RVUs. Unfortunately, the PIAA 
does not include actual physician claims-made premium data by insurer 
and specialty classification. The information that was available from 
PIAA ranged from insured demographics information to medical 
malpractice claims trends.
    Regarding our criteria for premium data collection efforts, we have 
shared the criteria for those premium data collection efforts with the 
RUC PLI Workgroup.
    Comment: Several commenters recommended that the malpractice RVUs 
should remain stable. Commenters suggested that any budget neutrality 
adjustments, positive or negative, that might occur due to the 5-year 
review of malpractice RVUs should be made to the conversion factor and 
not to the malpractice RVUs.
    Response: We acknowledge the comments that suggest that any 
adjustments for budget neutrality not be performed on the RVUs, but we 
note that any budget neutrality adjustments to the RVUs do not change 
the relative relationship among the values for the services but instead 
uniformly change all relative values. Regarding malpractice RVUs 
specifically, malpractice RVUs are by nature not ``stable.'' When the 
malpractice RVUs are reviewed and updated, the malpractice RVUs 
associated with all services could potentially change. Additionally, 
for 2005, we are mandated by statute to apply at least a 1.5 percent 
increase to the conversion factor. Thus, if the budget neutrality 
associated with updated malpractice RVUs were negative, it would not be 
possible to ensure budget neutrality and comply with the statutory 1.5 
percent update.

[[Page 66275]]

    Comment: One commenter recommended that the exceptions to the 
surgical risk factor be modified to include coding changes since the 
initiation of the resource-based malpractice RVUs in 2000. The previous 
update to the malpractice RVUs made service-specific exceptions, 
whereby certain codes were assigned the higher surgical risk factor in 
the calculation of their final malpractice RVU. The commenter 
specifically requested that due to CPT coding modifications, the 
following codes should also receive this same coding modification and 
receive the greater of their actual average risk factor or the risk 
factor for cardiac catheterization: 92973-92974, 93501-93533, 93580-
93581, 93600-93613, and 93650-93652.
    Response: In order to retain the exceptions that were identified in 
the previous malpractice RVU update for this new series of services, we 
will assign the greater of the actual average risk factors or the risk 
factor for cardiac catheterization services.
    Comment: Several commenters agreed with our use of the work RVUs as 
the best available data source for adjusting the malpractice RVUs for 
risk of service. These commenters noted, as we did, that the work RVUs 
are not a perfect proxy for risk of service, but are the best available 
source at this time. Commenters requested that we continue our use of 
work RVUs as the adjuster to malpractice RVUs for risk of service, but 
also requested that we be responsive to potential anomalies that may be 
identified.
    Response: We agree with these comments and look forward to 
continuing our work with the various organizations to identify all 
potential anomalies in the malpractice RVUs.
    Comment: One commenter expressed concern that, although malpractice 
premiums have increased for all specialty practices, some specialty 
practices will experience a decline in payments as a result of the 5-
Year Review of malpractice RVUs. This commenter suggested that 
additional dollars need to be added to the system to account for rising 
PLI costs.
    Response: The impact of the malpractice RVU revisions on an 
individual specialty organization is not a direct reflection of the 
increases or decreases in their malpractice premiums but instead 
reflects increases or decreases in a specific state's premiums as 
compared to the national average. In some instances, specialty 
organizations might have experienced slight increases in their 
respective malpractice premiums since the last malpractice RVU update, 
but these increases have occurred at a slower rate than the national 
average increase for all specialty organizations. The result is a 
negative impact on these specialties. Specialty organizations that have 
increased at a rate higher than the national average will experience 
positive impacts.
    Comment: One commenter believes that additional dollars should be 
added to the Medicare physician fee schedule to account for escalating 
professional liability insurance premiums.
    Response: The Medicare Economic Index (MEI) is the device by which 
additional dollars are added to the physician fee schedule. For 2005, 
the cost category associated with professional liability insurance has 
increased by 23.9 percent. However, for 2004 and 2005, section 601 of 
the MMA established an update of 1.5 percent.
    Comment: The American College of Radiology (ACR) commented that 
there is an imbalance between the distribution of malpractice RVUs to 
the professional component and technical component of a service. The 
ACR requested that we work with ACR staff to identify alternative 
methodologies for the more appropriate valuation of technical component 
services.
    Response: Physician work RVUs are used to adjust for risk of 
service. Because technical component services do not have physician 
work RVUs, they are still valued using charge-based RVUs instead of the 
resource-based malpractice RVU methodology. We look forward to working 
with the ACR and other interested specialty organizations to examine 
alternative methodologies that would allow technical component services 
to also reflect resource-based malpractice RVUs.

Final Decision

    We are implementing the revised 2005 malpractice RVUs as proposed 
with the modifications noted in the discussions above. Additionally, we 
are continuing to work with the AMA's RUC to--
     Consider the appropriateness of a dominant specialty 
approach;
     Identify the most current nationally representative 
professional liability insurance premium data;
     Review the current ISO crosswalks; and
     Review aberrant data patterns in low-utilization services 
for possible inclusion in a future rulemaking cycle.

D. Coding Issues

1. Change in Global Period for CPT Code 77427, Radiation Treatment 
Management, Five Treatments
    This code was included in the November 2, 1999 physician fee 
schedule final rule (64 FR 59380) 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 was brought to our attention that 
this global indicator is incorrect and that the code should be assigned 
a 90-day global period because the RUC valuation of this service 
reflected a global period of 90 days which we had accepted. Therefore, 
we proposed to correct the global indicator for this service to reflect 
a global period of 90 days (090).
    Comment: Specialty organizations representing radiation oncology 
and radiology as well as individual physicians and providers, and the 
AMA, all expressed concern about this proposal to change the global 
period for CPT code 77427. The commenters stated that this code is 
universally recognized as a recurring service that can be provided 
multiple times during a course of radiation. This code is usually 
submitted once for each group of five treatments (or fractions) and 
represents substantial services furnished during that group (typically 
1 week) of five treatments. Commenters believe this proposed change 
would--
     Contradict the current CPT definitions;
     Not reflect the process of care for radiation;
     Countervene the essence of the RUC valuations; and
     Negate the guidelines that we previously issued.
    Because a change in the global period could have a significant 
impact on the process of care for radiation oncology, commenters urged 
us to withdraw this proposal or to delay implementation until there is 
further discussion with the specialty organizations and the RUC, and 
clarification of billing matters related to this proposed change are 
provided.
    Response: Based on the concerns raised by the commenters, we are 
not changing the global period for this service as proposed.

Result of Evaluation of Comments

    We are retaining the global period of ``xxx'' for CPT code 77427.

[[Page 66276]]

2. Requests for Adding Services to the List of Medicare Telehealth 
Services
    As discussed in the proposed rule (69 FR 47510), section 1834(m) of 
the Act defines telehealth services as professional consultations, 
office and other outpatient visits, and office psychiatry services 
defined as of July 1, 2000 by CPT codes 99241 through 99275, 99201 
through 99215, 90804 through 90809, and 90862. In addition, the statute 
requires 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 to or 
deleting services from the list of Medicare telehealth services (67 FR 
79988). This process provides the public an opportunity on an ongoing 
basis to submit requests for adding a service. We assign any request to 
add a service to the list of Medicare telehealth services to one of the 
following categories:
     Category 1: Services that are similar to office and other 
outpatient visits, consultation, and office psychiatry services. In 
reviewing these requests, we look for similarities between the proposed 
and existing telehealth services in terms of the roles of, and 
interactions among, the beneficiary, the physician (or other 
practitioner) at the distant site and, if necessary, the telepresenter. 
We also look for similarities in the telecommunications system used to 
deliver the proposed service, for example, the use of interactive audio 
and video equipment.
     Category 2: Services that are not similar to the current 
list of telehealth services. Our review of these requests includes an 
assessment of whether the use of a telecommunications system to deliver 
the service produces similar diagnostic findings or therapeutic 
interventions as compared with the face-to-face ``hands on'' delivery 
of the same service. Requestors should submit evidence showing that the 
use of a telecommunications system does not affect the diagnosis or 
treatment plan as compared to a face-to-face delivery of the requested 
service.
    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. 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.

    We received the following public requests for addition in CY 2003:
     Inpatient hospital care (as represented by CPT codes 99221 
through 99223 and 99231 through 99233).
     Emergency department visits (as defined by CPT codes 99281 
through 99285).
     Hospital observation services (as represented by CPT codes 
99217, 99218 through 99220).
     Inpatient psychotherapy (as defined by CPT codes 90816 
through 90822).
     Monthly management of patients with end-stage renal 
disease (ESRD), (as represented by HCPCS codes G0308 through G0319).
     Speech and audiologist services (as defined by CPT code 
range 92541 through 92596).
     Case management (as identified by CPT codes 99361 and 
99362)
     Care plan oversight services (as represented by CPT codes 
99374 and 99375).
    After reviewing the public requests for addition, we proposed to 
add ESRD-related services as described by G0308, G0309, G0311, G0312, 
G0314, G0315, G0317, and G0318 to the list of Medicare telehealth 
services. However, we specified that the required clinical examination 
of the vascular access site must be furnished face-to-face ``hands on'' 
(without the use of an interactive telecommunications system) by a 
physician, certified nurse specialist (CNS), nurse practitioner (NP), 
or physician's assistant (PA). An interactive telecommunications system 
may be used for providing additional visits required under the 2 to 3 
visit Monthly Capitation Payment (MCP) code and the 4 or more visit MCP 
code.
    Moreover, we proposed to add the term ``ESRD-related visits'' to 
the definition of Medicare telehealth services at Sec.  410.78 and 
Sec.  414.65 as appropriate.
    We did not propose to add any additional services to the list of 
Medicare telehealth services for CY 2005.
    For further information on the addition to the list of telehealth 
services, see the Federal Register dated August 5, 2004 (69 FR 47510).

Inpatient Hospital Care, Hospital Observation Services, Inpatient 
Psychotherapy, and Emergency Department Services

    Comment: We received conflicting comments on our proposal not to 
add inpatient hospital care, hospital observation services, inpatient 
psychotherapy, and emergency department services to the list of 
approved telehealth services. For example, one professional society 
supported our proposal not to add inpatient hospital care, hospital 
observation services, inpatient psychotherapy, and emergency department 
services to the list. That commenter believes conclusive efficacy data 
is necessary before adding the aforementioned services. Likewise, an 
association representing emergency department management agreed that 
emergency department visits should not be added to the list of Medicare 
telehealth services. That commenter believes that hospitals in rural 
areas have physicians with sufficient experience to handle the 
complexities of emergent care.
    An association representing family physicians agreed with our 
proposal not to add inpatient hospital care and hospital observation 
services. However, they disagreed with our proposal not to add 
emergency department visits to the list of Medicare telehealth 
services. The commenter stated that emergency department visits should 
not be assigned to category 2 based on the acuity of the patient. The 
commenter believes that the range of potential acuity is the same in 
the emergency room as it is in the office setting and noted that office 
and other outpatient visits are currently on the list of Medicare 
telehealth services. A professional society encouraged us to reexamine 
the request to add inpatient hospital care, observation services, and 
inpatient psychotherapy to the list of Medicare telehealth services in 
the future.
    Response: We agree that the acuity for some patients may be the 
same in the emergency department as in a physician's office. However, 
we also believe that more acutely ill patients are more likely to be 
seen in the emergency department. Although telehealth is an acceptable 
alternative to face-to-face ``hands on'' patient care in certain 
settings, the potential for misdiagnosis and/or mismanagement, with 
more serious consequences, exists in high acuity environments like the 
emergency department when telehealth is used as a replacement for an 
onsite physician or practitioner. The practice of emergency medicine 
often requires frequent patient reassessments, rapid physician 
interventions, and sometimes the continuous physician interaction with 
ancillary staff and consultants. We do not have evidence suggesting the 
use of telehealth could be a reasonable surrogate service for this type 
of care. In the absence of sufficient evidence that illustrates that 
the use of a telecommunications system produces

[[Page 66277]]

similar diagnoses or therapeutic interventions as would the face-to-
face delivery of inpatient hospital care, emergency department visits, 
hospital observation services, and inpatient psychotherapy, we do not 
plan to add these services to the list of approved telehealth services. 
As discussed in the proposed rule, 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 may be 
requested from an appropriate source.
    Comment: A telehealth association and a telehealth network 
requested that we clarify what consultation codes could be used for 
hospital inpatients, emergency room cases, and patients designated as 
observation status.
    Response: The appropriate consultation code depends on the 
admission status of the beneficiary. When the beneficiary is an 
inpatient of a hospital, the physician or practitioner at the distant 
site bills an initial or follow-up inpatient consultation as described 
by CPT codes 99251 through 99263. For the hospital observation setting 
and emergency department, the appropriate office or other outpatient 
consultation code is CPT codes 99241 through 99245.
    Comment: Some commenters believe that hospital inpatient care, 
inpatient psychotherapy, observation services, and emergency department 
visits should all be assigned to category 1 because they are clinically 
the same as a consultation. Moreover, the commenters expressed their 
opinion that a telecommunications system would not substitute for an 
in-person practitioner for the requested hospital services.
    Response: We agree that the key components of a consultation are 
similar to inpatient hospital care, observation services, and emergency 
department visits. However, a consultation service is distinguished 
from the requested hospital services because it is provided by a 
physician or practitioner whose opinion or advice regarding evaluation 
and management of a specific problem is requested by another physician 
or appropriate source. The ongoing management of the patient's 
condition remains the responsibility of the practitioner who requested 
the consultation. As discussed in our response to another comment, a 
consultation may be provided as a Medicare telehealth service for 
hospital inpatients, emergency room cases, and patients designated in 
observation status.
    In furnishing a consultation as a telehealth service, the physician 
at the distant site provides additional expertise, to ensure optimal 
patient outcomes. For consultation services, a practitioner is 
available to manage the patient at the originating site. However, 
adding the requested hospital services would permit a 
telecommunications system to be used as a substitute for an onsite 
practitioner because the physician or practitioner at the distant site 
assumes responsibility for the ongoing management of the patient's 
condition.

End Stage Renal Disease--Monthly Management of Patients on Dialysis

    Comment: Many commenters, including a telehealth association, a 
nephrology nurses association, a renal physicians association, a health 
system, a community hospital, a telemedicine law group, and others 
applauded our proposal to add the ESRD-related services with 2 or 3 
visits per month and ESRD-related services with 4 or more visits per 
month to the list of Medicare telehealth services. For example, two 
commenters believe that adding these services will help provide 
dialysis patients living in rural areas sufficient access to nephrology 
specialists and will save both patients and practitioners a significant 
amount of travel time. Additionally, many commenters expressed strong 
support for not permitting the visit that includes a clinical 
examination of the vascular access site to be added to the list of 
Medicare telehealth services and agreed that this exam should be 
furnished in person.
    Response: We agree with the comments.
    Comment: With regard to furnishing ESRD-related visits under the 
MCP, a nephrology association suggested that we permit the use of e-
mail and telephone conferencing for one year. The commenter believes 
this grace period would enable physicians and originating sites to 
acquire the necessary technology and execute their implementation 
plans. Additionally, an association of kidney patients questioned 
whether telehealth services would be available to ESRD patients in non-
rural areas.
    Response: Services added to the list of Medicare telehealth 
services are subject to the requirements and conditions of payment in 
the law and regulations. Under the Medicare telehealth provision, the 
use of an interactive audio and video telecommunications system that 
permits real-time interaction between the patient, physician or 
practitioner at the distant site, and telepresenter (if necessary) is a 
substitution for the face-to-face requirements under Medicare. 
Electronic mail systems and telephone calls are specifically excluded 
from the definition of an interactive telecommunications system. 
Moreover, we do not have the legislative authority to expand the 
geographic areas where telehealth services may be furnished. Telehealth 
services may only be furnished in non-Metropolitan Statistical Area 
counties or rural health professional shortage areas.
    Comment: An association representing kidney patients questioned 
whether we plan to evaluate the provision of telehealth services to 
ESRD patients to determine best practices.
    Response: We believe that most physicians and practitioners will 
use telehealth services for providing additional visits required under 
the MCP as appropriate to manage their patients on dialysis. However, 
we would welcome specific data on best practice methods for furnishing 
ESRD-related services as telehealth services.
    Comment: Some commenters indicated a belief that the ESRD-related 
services were assigned to category 2 for review. For example, one 
telehealth group believed that a discrepancy exists between the 
rationale we used to add ESRD-related services to the list of 
telehealth services and our decision not to add inpatient hospital 
care, observation services, inpatient psychotherapy, and emergency 
department visits. The commenter stated that ESRD-related services were 
added in the absence of randomized clinical trials or comparison 
studies and mentioned that the same level of evidence was submitted for 
ESRD-related services as for other requests (for example, inpatient 
hospital services). The commenter requested clarification on the method 
used to assign services to category 1 or category 2.
    Response: As discussed in the proposed rule, the MCP represents a 
range of services provided during the month, including various 
physician and practitioner services, such as the establishment of a 
dialyzing cycle, outpatient evaluation and management of the dialysis 
visit(s), telephone calls, and patient management as well as clinically 
appropriate physician or practitioner visit(s) during the month. At 
least one of the visits must include a clinical examination of the 
vascular access site furnished face-to-face, ``hands-on'' by a 
physician, CNS, NP, or PA.
    We considered the outpatient evaluation and management of the 
dialysis visits to be similar to an office

[[Page 66278]]

visit and other outpatient visits currently on the list of Medicare 
telehealth services. However, we believe that the clinical examination 
of the vascular access site is not similar to the existing telehealth 
services, and, therefore, it meets the criteria for a category 2 
request. We did not propose to add a comprehensive visit including a 
clinical examination of the vascular access site, to the list of 
Medicare telehealth services because the requestor did not provide 
comparative analyses illustrating that the use of a telecommunications 
system is an adequate substitute for a face-to-face clinical 
examination of the vascular access site. However, as discussed in the 
proposed rule, we do believe that the subsequent visits to monitor the 
patient's condition met our criteria for approving a category 1 
request. For category 1 services, we look for similarities between the 
proposed and existing telehealth services in terms of the roles of, and 
interactions among, the beneficiary, the physician or practitioner at 
the distant site, and, if necessary, the telepresenter.
    Therefore, we proposed that the MCP physician, that is, the 
physician or practitioner responsible for the evaluation and management 
of the patient's ESRD, and other practitioners within the same group 
practice or employed by the same employer or entity, may furnish 
additional ESRD-related visits as telehealth services using an 
interactive audio and video telecommunications system. However, for 
purposes of billing the MCP, at least one visit must include a clinical 
examination of the vascular access site, and must be furnished face-to-
face, ``hands on'' by a physician, CNS, NP, or PA each month.
    Comment: One commenter requested that we allow a physician or 
surgeon located at the originating site (who is not the MCP physician) 
to furnish ESRD-related visits involving the clinical examination of 
the vascular access site. The commenter stated that having a physician 
or surgeon skilled in vascular access management available to work in 
coordination with the MCP physician is necessary for geographically 
remote areas such as Alaska and in severe weather conditions. The 
commenter believes that this type of arrangement is well suited for 
telehealth.
    Response: The MCP physician may use another physician to provide 
some of the visits during the month however, the non-MCP physician must 
have a relationship with the billing physician such as a partner, 
employees of the same group practice or an employee of the MCP 
physician, for example, the physician at the originating site is either 
a W-2 employee or 1099 independent contractor.

Case Management and Care Plan Oversight (Team Conferences and Physician 
Supervision)

    A telehealth association and a network of clinics requested 
clarification on--
     The scope of authority relating to the addition of 
services that do not require a face-to-face encounter with the patient; 
and
     Whether our policy for care plan oversight is similar to 
the interpretation of an x-ray and other services that do not require a 
face-to-face encounter.
    Additionally, a neurological society urged us to reconsider our 
decision not to add medical team conferences to the list of telehealth 
services. The commenter argued that adding medical team conferences as 
a telehealth service would improve the quality of the care plan and 
save time for all physicians involved in the patient's care.
    Response: We add services to the list of Medicare telehealth 
services that traditionally require a face-to-face physician or 
practitioner encounter. The use of an interactive audio and video 
telecommunications system, permitting real time interaction between the 
beneficiary, physician or practitioner at the distant site, and 
telepresenter (if necessary) is a substitute for face-to-face 
requirements under Medicare. Services not requiring a face-to-face 
encounter with the patient that may be furnished through the use of a 
telecommunications system are already covered under Medicare. As 
discussed in chapter 15, section 30 of the Medicare Benefit Policy 
Manual, payment may be made for physicians' services delivered via a 
telecommunications system for services that do not require a face-to-
face patient encounter. The interpretation of an x-ray, 
electrocardiogram, electroencephalogram and tissue samples are listed 
as examples of these services. The Medicare Benefit Policy Manual may 
be found on our Web site at http://www.cms.hhs.gov/manuals/ by 

selecting the internet-only manuals link.
    Medical team conferences and monthly physician supervision do not 
require a face-to-face encounter with the patient, and, thus, a 
telecommunications system may be used to accomplish them. However, 
Medicare payment for CPT codes 99361, 99362, and 99374 are bundled; no 
separate payment is made under the Medicare program for these services, 
and CPT code 99375 (physician supervision; 30 minutes or more) is 
invalid for Medicare payment purposes. We pay for monthly physician 
supervision as described by HCPCS codes G0181 and G0182.

Process for Adding Services to the List of Medicare Telehealth Services

    Comment: We received conflicting comments on our process for adding 
services to the list of Medicare telehealth services. For example, a 
surgeons' association supported the evidence-based approach for adding 
category 2 services. However, a school of medicine and a telemedicine 
and electronic health group believe that we should consider changing 
our categorical system for adding a service to the list of Medicare 
telehealth services, specifically, in relation to the requested 
hospital services for hospital inpatients, emergency room cases, and 
patients designated as observation status.
    One of the commenters believes that the decision to use a 
telehealth system should be up to the physician or practitioner at the 
distant site. The commenter argues that, if the physician or 
practitioner at the distant site is not comfortable in making a 
clinical judgment, the patient may be asked to travel to the 
physician's office for further examination.
    Moreover, the commenter contends that the nature of telehealth 
services is not well suited for clinical trials and that the evidence 
that we require under category 2 may never be obtained because of the 
lack of reimbursement. As an alternative, the commenters recommended a 
method of review that considers--
     Clinical utilization of the requested telehealth service;
     The opinions of physicians and practitioners furnishing 
the telehealth service; and
     The opportunity for the physicians and practitioners to 
prove the service is being delivered appropriately via 
telecommunications system.
    Response: We believe that the current method for reviewing requests 
for addition already considers the criteria mentioned by the commenter. 
The process for adding services to the list of Medicare telehealth 
services provides the public an ongoing opportunity to propose services 
that they believe are appropriate for Medicare payment. Requestors may 
submit data showing that patients who receive the requested service via 
telecommunications system are satisfied with the service delivered and 
that the use of a telecommunications system does not change the 
diagnosis or therapeutic

[[Page 66279]]

interventions for the requested service. Additionally, we believe that 
having different categories of review allows us to add requested 
services that are most like the current telehealth services (for 
example, office visits, consultation, and office psychiatry) without 
subjecting these requests to a comparative analysis.
    Since establishing the process to add services to the list of 
Medicare telehealth services, we have added the psychiatric diagnostic 
interview examination and have proposed specific ESRD-related services 
for the CY 2005 rule.
    Comment: One commenter recommended that we replace the term face-
to-face with ``in-person''. The commenter believes that the term ``in-
person'' is a better description of an encounter where the practitioner 
is in the same physical location as the beneficiary.
    Response: The commenter's suggestion to use the term ``in-person'' 
to describe an encounter where the physician or practitioner and the 
beneficiary are physically in the same room has been noted. We will 
consider the commenter's suggestion as we discuss Medicare telehealth 
payment policy in the future.

Report to Congress

    Comment: An audiology society and a language and hearing 
association strongly believe that most audiology services and speech 
therapy can be furnished remotely as telehealth services. To that end, 
many commenting groups and associations requested that we complete the 
report to Congress (as required by section 223(d) of the BIPA) and 
urged us to recommend adding speech language pathologists and 
audiologists as medical professionals that may provide and receive 
payment for Medicare telehealth services.
    Moreover, in light of the proposed addition of ESRD-related 
services to the list of telehealth services, many of these same 
commenters along with a nephrology society requested that we recommend 
adding dialysis facilities to the list of originating sites. One 
commenter requested that we add the patient's home to the definition of 
an originating site.
    Response: The report to Congress on additional sites and settings, 
practitioners, and geographic areas that may be appropriate for 
Medicare telehealth payment is under development. We are considering 
the suggestions raised by the commenters as we formulate our 
recommendations to the Congress.

Result of Evaluation of Comments

    We are adding ESRD-related services as described by G0308, G0309, 
G0311, G0312, G0314, G0315, G0317, and G0318 to the list of Medicare 
telehealth services. However, we will require that the complete 
assessment must include a face-to-face clinical examination of the 
vascular access site furnished ``hands on'' (without the use of an 
interactive telecommunications system) 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 code and the 4 or 
more visit MCP code. Additionally, we are adding the term ``ESRD-
related visits'' to the definition of Medicare telehealth services at 
Sec.  410.78 and Sec.  414.65, as appropriate.
3. National Pricing of G0238 and G0239 Respiratory Therapy Service 
Codes.
    In the 2001 final rule, we created the following 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 respiratory 
function, other than ones described by G0237, one-on-one, face-to-face, 
per 15 minutes (includes monitoring).
     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 (CORFs), 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 will 
provide needed clarity. Since these services are typically performed by 
respiratory therapists, we did not assign physician work to G0237, and 
we did not propose work RVUs for either G0238 or G0239.
    Therefore, we proposed to value nationally the practice expense for 
these services using the nonphysician work pool. We proposed to 
crosswalk practice expense RVUs for G0238 to those for G0237 based on 
our belief that the practice expense for the activities involved is 
substantially the same for both services.
    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 proposed using 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 G0329.
    We also proposed a malpractice RVU of 0.02, the malpractice RVU 
assigned to G0237, for these two G-codes.
    Comment: Commenters supported the national pricing for these 2 G-
codes, G0238 and G0239. However, these organizations disagree with our 
RVU assignment. Specifically, most commenters disagreed with the lack 
of physician work RVUs and also believed that the malpractice RVU is 
inadequate to reflect the costs associated with the delivery of the 
services. These organizations contend that pulmonary rehabilitation 
services ``include a physician-directed individualized plan of care 
using multidisciplinary qualified health professionals to enhance the 
effective management of pulmonary diseases and resultant functional 
deficits.'' They believe that beneficiaries may receive pulmonary 
rehabilitation services at physician offices, outpatient departments of 
acute care hospitals, CORFs and rehabilitation clinics. The commenters 
noted that physicians and qualified nurse practitioners (NPs) and PAs 
order, supervise, and approve the plans of care for patients receiving 
respiratory therapy services, irrespective of the delivery setting.
    Because respiratory rehabilitation is often furnished in a 
physician office, these organizations believe the malpractice RVU 
assigned is inadequate to account for the physician involvement and 
requested that a more appropriate risk factor be used.
    Response: Because we believe that respiratory therapists (RTs) 
typically deliver these services, it would be inappropriate to assign a 
physician work RVU to these services. The malpractice RVU of 0.02 is 
similar to RVUs of therapeutic procedures delivered by physical and 
occupational therapists for similar services, including procedures 
performed one-on-one and in groups. We believe that the 0.02 
malpractice RVU fairly represents the risk value inherent in the 
provision of these procedures. However, because the commenters 
expressed concerns about work and malpractice RVUs, we are assigning 
these RVUs on an interim

[[Page 66280]]

basis, and we are requesting that the RUC or HCPAC consider this series 
of three G-codes at an upcoming meeting.
    Because RTs cannot directly bill Medicare for their services, these 
G-codes can only be billed as incident to services in physician offices 
and outpatient hospital departments or as CORF services. When performed 
in the CORF setting, these services must be delivered by qualified 
personnel, that is, RTs and respiratory therapy technicians, as defined 
at Sec.  485.70. The CORF benefit requires the physician to establish 
the respiratory therapy plan of care and mandates a 60-day 
recertification for therapy plans of care, including physical therapy 
(PT), occupational therapy (OT), speech language pathology (SLP), and 
respiratory therapy. As we stated in the December 31, 2002 final rule, 
we believe that specially trained professionals (that is, registered 
nurses, physical therapists and occupational therapists) can also 
provide these services.
    These respiratory therapy G-codes were designed to provide more 
specific information about the medically necessary services being 
provided to improve respiratory function and to substitute for the 
physical medicine series of CPT codes 97000 through 97799, except when 
services are furnished and meet all the requirements for physical and 
occupational therapy services.
    Comment: While three commenters voiced concerns about the 
significant undervaluing of these codes, one commenter noted that the 
practice expense RVUs fail to recognize the intensity of services and 
the cost of monitoring and other equipment associated with providing 
these services.
    Response: We agree that the practice expenses, particularly the 
equipment, for G0237 and G0238 are not equivalent and that there are 
more resources required to provide the medically necessary services of 
G0238. The necessary monitoring equipment referenced by commenters were 
considered at the time G0327 was originally valued. The appropriate 
direct inputs will be added to the practice expense database. However, 
we identified the omission of therapeutic exercise equipment for G0238 
and G0239 and we will also add this to the practice expense database.

Result of Evaluation of Comments

    We are assigning practice expense and malpractice RVUs to G0238 and 
G0239 and will add the additional items to the practice expense 
database. These codes are being valued in the nonphysician work pool as 
proposed. We will also ask the RUC or HCPAC to consider these codes.
4. Bone Marrow Aspiration and Biopsy through the Same Incision on the 
Same Date of Service.
    In the August 5, 2004 rule, we proposed a new add-on G-code, G0364 
(proposed as G0XX1): Bone marrow aspiration performed with bone marrow 
biopsy through same incision on same date of service. The physician 
would use the CPT code for bone marrow biopsy (38221) and G0364 for the 
second procedure (bone marrow aspiration).
    We believe that there is minimal incremental work associated with 
performing the second procedure through the same incision during a 
single encounter. We estimated that the time associated with this G-
code is approximately 5 minutes based on a comparison to CPT code 38220 
bone marrow aspiration which has 34 minutes of intraservice time and a 
work RVU of 1.08 work when performed on its own. We proposed 0.16 work 
RVUs for this new add-on G-code and malpractice RVUs of 0.04 (current 
malpractice RVUs assigned to CPT code 38220). For practice expense, we 
proposed the following practice expense inputs:

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

    We also proposed a ZZZ global period (code related to another 
service and is always in the global period of the other service) for 
this add-on code since this code is related to another service and is 
included in the global period of the other service.
    In the August 5, 2004 proposed rule, we also stated that 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, is appropriate to use and 
Medicare's multiple procedure rule will apply. In this instance, the 
CPT codes for aspiration and biopsy are each being used.
    Comment: Many commenters supported creation of this G-code; 
however, all commenters stated that the time for this procedure (5 
minutes) was substantially underestimated. Commenters recommended 
increasing the added incremental time associated with the aspiration to 
15 minutes. One commenter noted that this time is needed for the actual 
aspiration procedure, approving the quality of the aspiration, 
collecting flow cytometry and chromosome studies, preparing additional 
slides, ordering appropriate lab tests on the slides, and performing 
the added recordkeeping and documentation. Another commenter provided a 
detailed description of the activities involved in this procedure. 
Commenters also recommended that the practice expense input for the 
nurse assisting with the procedure should be increased to 15 minutes.
    Response: We continue to believe that the proposed 5 minutes of 
physician time, 5 minutes of registered nurse time, and 2 minutes of 
lab technician time reflect the additional effort involved when a bone 
marrow aspiration is performed in conjunction with a bone marrow biopsy 
through the same incision during a single encounter. It is our 
understanding that some of the activities attributed to the additional 
15 minutes of physician work generally are performed by ancillary 
staff, for example, preparing slides. While we appreciate the 
information provided, we believe that the majority of the effort and 
specific tasks discussed are accounted for in the CPT code for bone 
marrow biopsy (38221) which is the primary code being billed.
    Comment: Two physician specialty societies, representing 
radiologists and interventional radiologists, questioned the need for 
the proposed code, because the multiple surgical discount rule that 
reduces payment for a subsequent lower valued service applies, thereby 
taking into account any savings in physician work. If we choose to 
proceed with the proposal, the commenter recommended the RVUs be 
consistent with those determined using the current values for CPT codes 
38220 and 38221 and the multiple surgical discount rule.
    Response: One of the primary reasons for our proposal for this G-
code was that we believe that, even with the application of the 
multiple procedure reduction, we would be overpaying for these services 
when they are performed on the same day, at the same encounter and 
using the same incision.

Result Of Evaluation of Comments

    We are finalizing our proposal and using new G-code G0364, Bone 
marrow aspiration performed with bone marrow biopsy through the same 
incision on the same date of service. Payment is based on the work and 
malpractice RVUs and practice expense inputs proposed and the global 
period for this service is ``ZZZ''.

[[Page 66281]]

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.
    As discussed in the August 5, 2004 proposed rule, the Conference 
Report accompanying the Consolidated Appropriations Bill, H.R. 2673, 
(Pub. L. 108-199, enacted January 23, 2004) urged the Secretary to 
review payment for this code, and the portable x-ray industry has also 
requested that we reexamine payments for this code.
    Q0092 is currently priced in the nonphysician work pool. At the 
time we modeled this change for the proposed rule, removing this code 
from the nonphysician work pool had 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 a 
negative impact on many of the codes remaining in the nonphysician work 
pool. 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. We requested 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 work pool.
    Comment: Most commenters recommended removing portable x-ray from 
the nonphysician work pool, using the ``existing data'' from the 
American College of Radiology (ACR) supplemental practice expense 
survey as the practice expense per hour proxy. However, the National 
Association of Portable X-Ray Suppliers (NAPXP) requested additional 
time to review information they received from us just 3 days before the 
close of the comment period. This association requested that they be 
allowed to submit supplemental comments.
    Response: ACR requested that we delay incorporating their survey 
data for 1 year. Using the data for one code, as proposed by 
commenters, would be inconsistent with that request. We believe it is 
inappropriate to use the new survey data for this code but no other 
code. Even if we removed the set-up code from the nonphysician work 
pool and calculated its practice expense RVU using the ACR data, the 
increase in payment for the portable x-ray set-up code would be largely 
offset by lower payment for x-ray services. Payments for other services 
in the nonphysician work pool would also decline affecting other 
specialties, such as radiology, radiation oncology, cardiology, 
allergy, audiology and others. Further, the portable x-ray set-up code 
is yet to be refined, and we believe that the 45 minutes of staff time 
that is used to determine its value is likely overstated. We believe it 
is preferable to address refinement of the code and pricing the service 
outside of the nonphysician work pool together. Therefore, in 2005, we 
are continuing to price this service within the nonphysician work pool.
    The NAPXP requested more time to review the data we supplied them. 
NAPXP's comment implying that we withheld ``data'' from them is simply 
wrong. In an effort to explain the theoretical reasons for our 
statements that removing this service from the nonphysician work pool 
could lower overall payments to portable x-ray suppliers, we prepared 
an illustration for another association as a follow-up request after a 
meeting, where we were asked to explain our proposed rule analysis. The 
explanation contained no new data. Moreover, we provided the 
explanatory information to NAPXP as soon as they requested it. Since 
the information NAPXP complains about was illustrative only, we do not 
believe NAPXP has been prejudiced in any way. Moreover, we are willing 
to explain the information to NAPXP and to consider any comments they 
may have as we consider changes to the practice expense methodology for 
2006.
6. Venous Mapping for Hemodialysis
    In the August 5, 2004 rule, we proposed 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. We stated that 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 in order to allow us to track 
use of venous mapping for quality improvement purposes.
    We also proposed that this G-code be billed only by the operating 
surgeon in conjunction with CPT codes 36819, 36821, 36825, and 36832 
and that we would not permit payment for CPT code 93971 when this G-
code is billed, unless code CPT 93971 was being performed for a 
separately identifiable clinical indication in a different anatomic 
region.
    We proposed to crosswalk the RVUs for the new G-code from those of 
CPT code 93971 and also assigned this new G-code a global period of 
``XXX,'' which means that the global concept does not apply.
    Comment: Commenters representing specialty societies and individual 
providers were generally supportive of the proposal for this new code, 
but expressed the following three primary concerns:
     Commenters did not agree with restricting this code to the 
operating surgeon, stating that such a restriction could limit access 
and serve as a barrier in providing this service. They also stated that 
this proposed restriction is not reflective of current practice, since 
nonsurgeons often perform this procedure.
     Commenters did not agree with the proposed descriptor. 
They indicated that the proposed descriptor did not reflect the 
procedure as it is now performed and suggested (a) alternate wording, 
such as ``vascular mapping,'' ``autogenous AV fistula,'' and 
``prosthetic graft,'' ``vessel mapping;'' (b) that two G-codes should 
be created to distinguish between a complete bilateral and unilateral 
or limited studies. Other commenters noted that the proposal did not 
distinguish between mapping by venography or ultrasound (duplex), and 
some commenters suggested creating an additional G-code to distinguish 
between these procedures.
     Commenters stated that the comparison to CPT code 93971 in 
the proposed rule undervalues the service. While there are differences, 
the closer analogue in terms of time and resources required is CPT code 
93990, Duplex scans of hemodialysis access.
    Response: We proposed the G-code to create the opportunity for us 
to analyze

[[Page 66282]]

the relationship between venous mapping utilization and fistula 
formation.
    Based on the comments we received, we are revising the code 
descriptor to enable clinicians, other than the operating surgeon, who 
provide care to ESRD patients the opportunity to bill for this service.
    We believe that vessel mapping requires the assessment of the 
arterial and venous vessels in order to provide the information 
necessary for the creation of an autogenous conduit. Therefore, we are 
also revising payment for this code and will crosswalk it to CPT code 
93990 for work, malpractice, and practice expense RVUs because these 
RVUs more appropriately reflect the work and resources of this new G-
code. The G-code and descriptor for this service will be G0365, Vessel 
mapping of vessels for hemodialysis access (Services for preoperative 
vessel mapping prior to creation of hemodialysis access using an 
autogenous hemodialysis conduit, including arterial inflow and venous 
outflow). This code can only be used in patients who have not had a 
prior hemodialysis access prosthetic graft or autogenous fistula and is 
limited to two times per year.
    We will not permit separate payment for CPT code 93971 when this G-
code is billed, unless CPT code 93971 is being performed for a 
separately identifiable indication in a different anatomic region. We 
also note that other imaging studies may not be billed for the same 
site on the same date of service unless an appropriate ``KO'' modifier 
indicating the reason or need for the second imaging study is provided 
on the claim form.
    We will follow the utilization closely this year to better 
understand whether this code is used as intended.

III. Provisions Related to the Medicare Modernization Act of 2003

A. Section 611--Preventive Physical Examination

    Section 611 of the MMA provides for coverage under Part B of an 
initial preventive physical examination (IPPE) for new beneficiaries, 
effective for services furnished on or after January 1, 2005, subject 
to certain eligibility and other limitations.
    In the August 5, 2004 proposed rule, we described a new Sec.  
410.16 (Initial preventive physical examination: conditions for and 
limitations on coverage) that would provide for coverage of the various 
IPPE services specified in the statute. As provided in the statute, 
this new coverage allows payment for one IPPE 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. To implement the statutory provisions, we proposed definitions of 
the following terms:
     Eligible beneficiary;
     An initial preventive physical examination;
     Medical history;
     Physician;
     Qualified NPP;
     Social History, and
     Review of the individual's functional ability and level of 
safety.
    In keeping with the language of section 611 of the MMA, we defined 
the term ``eligible beneficiary'' to mean individuals who receive their 
IPPEs within 6 months after the date of their first Medicare Part B 
coverage period, but only if their first Part B coverage period begins 
on or after January 1, 2005. This section also defines the term 
``Initial Preventive Physical Examination'' to mean services provided 
by a physician or a qualified NPP 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 for 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 NPP are for the following statutory screening and 
other preventive services authorized under Medicare Part B:
     Pneumococcal, influenza, and hepatitis B vaccine and their 
administration;
     Screening mammography;
     Screening pap smear and screening pelvic exam services;
     Prostate cancer screening services;
     Colorectal cancer screening tests;
     Diabetes outpatient self-management training services;
     Bone mass measurements;
     Screening for glaucoma;
     Medical nutrition therapy services for individuals with 
diabetes or renal disease;
     Cardiovascular screening blood tests; and
     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 (USPSTF) recommendations, we interpreted 
the term ``initial preventive physical examination'' for purposes of 
this benefit to include all of the following service elements:
    1. Review of the individual's comprehensive medical and social 
history, as those terms are defined in proposed Sec.  410.16(a);
    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 NPP 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 proposed Sec.  410.16(a), (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 NPP 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 NPP, 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 first five elements of the initial preventive 
physical examination; and
    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 examinations, prostate cancer screening 
tests, colorectal cancer screening tests, diabetes outpatient self-
management training services, bone mass measurements, screening for 
glaucoma, medical nutrition therapy services, cardiovascular (CV) 
screening blood tests, and diabetes screening tests.

[[Page 66283]]

    The proposed ``medical history'' definition includes the following 
elements:
     Past medical history and surgical history, including 
experience with illnesses, hospital stays, operations, allergies, 
injuries, and treatment.
     Current medications and supplements, including calcium and 
vitamins.
     Family history, including a review of medical events in 
the patient's family, including diseases that may be hereditary or 
place the individual at risk.
    The proposed ``physician'' definition means for purposes of this 
provision a doctor of medicine or osteopathy (as defined in section 
1861(r)(1) of the Act).
    The proposed ``qualified nonphysician practitioner'' for purposes 
of this provision means a PA, NP, or clinical nurse specialist (CNS) 
(as authorized under sections 1861(s)(2)(K)(i) and 1861(s)(2)(K)(ii) of 
the Act and defined in section 1861(aa)(5) of the Act, or in 
regulations at Sec.  410.74, Sec.  410.75, and Sec.  410.76).
    The proposed ``social history'' definition includes, at a minimum, 
the following elements:
     History of alcohol, tobacco, and illicit drug use.
     Work and travel history.
     Diet.
     Social activities.
     Physical activities.
    The proposed definition of ``Review of the individual's functional 
ability and level of safety'' includes, at a minimum, a review of the 
following areas:
     Hearing impairment.
     Activities of daily living.
     Falls risk.
     Home safety.
    We also proposed conforming changes to specify 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 IPPEs that 
meet the eligibility limitation and the conditions for coverage that we 
are specifying under Sec.  410.16, Initial preventive physical 
examinations.
    With regards to the issue of payment for the IPPE, in the August 5, 
2004 proposed rule we stated that there is no current CPT code that 
contains the specific elements included in the IPPE and proposed to 
establish a new HCPCS code to be used for billing for the initial 
preventive examination. As required by the statute, we indicated that 
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 must be identified 
using the existing appropriate codes.
    Proposed payment for this code was based on the following:
     Work RVUs: We proposed a work value of 1.51 RVUs for G0344 
(G0XX2 in proposed rule) 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 
(1.34 RVUs), and CPT code 93000 electrocardiogram, complete (0.17 
RVUs), which is for a routine ECG with the interpretation and report.
     Malpractice RVUs: For the malpractice component of G0344, 
we proposed 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 proposed 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).
     Practice Expense RVUs: For the practice expense component 
of G0344, we proposed 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 proposed 
practice expense RVUs of 0.54 based on the practice expense RVUs 
assigned to CPT code 99203 (0.48) and 93010 (0.06).
    Because some of the components for a medically necessary Evaluation 
and Management (E/M) visit are reflected in this new G code, we also 
proposed, 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 IPPE. 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. We also 
stated the physician or qualified NPP 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 IPPE.
    The MMA did not make any provision for the waiver of the Medicare 
coinsurance and Part B deductible for the IPPE. Payment for this 
service would be applied to the required deductible, which is $110 for 
CY 2005, if the deductible is not met, and the usual coinsurance 
provisions would apply.

Analysis of and Response to Comments

    We specifically solicited public comments on the definition of the 
term ``initial preventive physical examination,'' with supporting 
documentation. For example, we indicated that we chose not to define 
the term, ``appropriate screening instrument,'' for screening 
individuals for depression, functional ability, and level of safety, as 
specified in the rule, because we anticipated that the examining 
physician or qualified NPP may 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 USPSTF, or other recognized medical professional group, would be 
acceptable for purposes of meeting the ``appropriate screening 
instrument'' provision. We asked that commenters making specific 
recommendations on this or any related issue provide documentation from 
the medical literature, current clinical practice guidelines, or the 
USPSTF recommendations.
    We received 71 public comments on the proposed rule regarding IPPE. 
Commenters included national and State professional associations, 
medical societies and medical advocacy groups, hospital associations, 
hospitals, managed care plans, physicians, senior advocacy groups, 
health care manufacturers, and others. Although a number of commenters 
expressed concern that the proposed rule was too prescriptive and not 
sufficiently targeted to prevention, a large majority of the commenters 
enthusiastically supported most of the coverage provisions of the 
proposed rule. Many of the commenters, however, suggested clarification 
and revision of the rule in a number of different areas, including the 
proposed definitions of ``initial preventive physical examination,'' 
``physician,'' and ``qualified nonphysician practitioner.'' Commenters 
also raised questions regarding other issues, such as those relating to 
the need for us to educate Medicare beneficiaries and providers with 
respect to the new benefit, and to monitor the implementation of the 
new benefit. Finally, commenters offered suggestions and questions with 
regards to payment issues, evaluation and

[[Page 66284]]

management services (E/M) and coinsurance and Part B deductible issues.
    A summary of the comments and our responses are presented below.
    Comment: A number of commenters expressed concern that in the 
proposed rule, we had gone beyond the coverage criteria that were 
specified in the statute for the new benefit. They noted that the 
additional criteria was too prescriptive and would only add confusion 
and an additional burden for physicians in determining what medical 
services are necessary for each beneficiary they evaluate. Several 
commenters indicated that while the proposed definition for the scope 
of the benefit was well-intentioned, the beneficiary's physician or 
other provider was the best person to determine what medical services 
are necessary in providing a thorough physical and to be responsive to 
the individual's age, gender, and particular health risks. In general, 
they suggested that we not interfere in a physician's judgment by 
attempting to standardize by Federal regulations the specific medical 
services to be included under the new benefit.
    Response: Section 611 of the MMA defines the scope of the IPPE 
benefit as physicians' services consisting of a physical examination 
(including measurement of height, weight, and blood pressure and an 
electrocardiogram) with the goal of health promotion and disease 
detection, as well as certain education, counseling, and referral 
services with respect to other statutory screening and preventive 
services also covered under the Medicare statute. We believe that the 
statutory parenthetical language, (including measurement of height, 
weight, and blood pressure and an electrocardiogram) recognizes that 
other services could be contained within the IPPE benefit. We are using 
the authority under section 1871(a) of the Act through the rulemaking 
process to provide clarity as to the specific services that are to be 
included under the new benefit.
    We believe that adding these additional services will help to 
ensure that a full and complete IPPE is provided to each beneficiary 
who chooses to take advantage of the service and that all beneficiaries 
who decide to do this are treated in a relatively uniform manner 
throughout the country. With an estimated 200,000 individuals expected 
to enroll in Medicare Part B each month starting in January 2005, who 
will be eligible to receive the IPPE benefit, we believe that it is 
paramount that we promulgate a minimum list of required services 
important to the goals of health promotion and disease detection that 
must be included in the new benefit, and we are specifying those 
service elements in the final rule.

The ``Initial Preventive Physical Examination'' Definition (IPPE) 
(Sec.  410.16(a))

    Comment: Three commenters indicated that this new benefit presents 
a unique opportunity to offer Medicare beneficiaries with a visit 
focused on prevention at the start of their Part B enrollment. They 
suggested, that we shift our focus in service element 1 of the 
definition of the new IPPE from a comprehensive to a more targeted 
priority list of modifiable risk factors, screening tests, and 
immunizations that are supported by the strongest evidence of 
effectiveness, and have been proven to improve the health of 
beneficiaries.
    Response: We agree that the intent of the new benefit is to deliver 
clinical preventive services that are accepted and effective in helping 
to keep people healthy and reduce the burden of disease whenever 
possible. Therefore, we agree to revise the language in service element 
1 to read as follows: ``Review of the individual's medical and social 
history with particular attention to modifiable risk factors for 
disease.''
    Comment: Three commenters indicated that the collection of 
information on a beneficiary's social history such as social 
activities, work and travel history, is a distraction and is not needed 
by the physician or other qualified NPP who is performing the 
preventive physical examination. The commenters suggest that we 
eliminate the proposed definition and not require the collection of 
this information.
    Response: We agree that information on work and travel history, and 
social activities may not be necessary for purposes of the new 
preventive physical examination and thus we are removing those elements 
from the minimum requirements for the ``social history'' definition. 
However, we believe it is important to retain three elements of the 
Social history definition in the final rule and they will be reflected 
in that document as follows:
     History of alcohol, tobacco, and illicit drug use.
     Diet.
     Physical activities.
    Comment: Several commenters requested that we add language to 
service element 1 to allow practitioners to ascertain information from 
individuals about additional disease or other diagnoses such as 
including questions regarding past diagnoses or treatment of cancer, 
diabetes, elevated blood sugar, height loss, previous fractures, and 
medical conditions that may increase a person's risk of coagulopathic 
disorders such as deep venous thrombosis (DVT).
    Response: In applying our definition of ``past medical history'' we 
expect that physicians and qualified NPPs performing the IPPE will be 
able to ask about an array of medical illnesses, including prior 
diagnoses and treatment of conditions such as cancer, diabetes, risk 
factors for osteoporosis such as height loss or previous fractures, and 
history of coagulopathic disorders such as DVT. Therefore, we do not 
see a need to expand the proposed definition as the commenters have 
suggested, and we have decided to leave it unchanged in the final rule.
    Comment: Three commenters asked us to add language to either 
service element 1 or 3 to allow practitioners to screen individuals for 
memory impairment.
    Response: Currently, the USPSTF has found insufficient evidence to 
recommend for or against routine screening for dementia with 
standardized instruments in asymptomatic persons. However, the USPSTF 
notes that patients with problems in performing daily activities should 
have their mental status evaluated and clinicians should remain alert 
for possible signs of declining cognitive function. We included as part 
of the definition for service element 3, ``Review of the individual's 
functional ability and level of safety,'' a review of the patient's 
activities of daily living. While not exhaustive, this review will 
primarily aid physicians in identifying a patient's problems with 
regard to performing these activities and the role cognitive impairment 
may play in these deficits.
    Comment: One commenter proposed that we not use the NCD process to 
revise the content of the IPPE in the future. The NCD process would be 
too slow or cumbersome to allow us to keep the content of the 
examination consistent with current clinical practice.
    Response: For service elements 2 and 3, which discuss the future 
use of the NCD process in determining appropriate screening instruments 
we will delete the following: ``unless the appropriate instrument is 
defined through the NCD process.'' We will add language that states 
available standardized screening tests must be recognized by national 
medical professional organizations.
    Comment: Several commenters requested that we clarify our intent as 
to whether the depression screening assessment in service element 2 
will include consideration of the potential for depression as well as 
an assessment


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[[pp. 66285-66334]] Medicare Program; Revisions to Payment Policies Under the 
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[[Page 66285]]

of an individual's current depression status. Another commenter asked 
us to clarify our intent with respect to the use of a screening 
instrument for persons with a current diagnosis of depression.
    Response: We agree with the commenters that the regulation language 
on depression screening needs to be clarified. We are revising service 
element 2 to read ``review of the individual's potential (risk factors) 
for depression, including current or past experience with depression or 
other mood disorders, based on the use of an appropriate screening 
instrument for persons without a current diagnosis of depression, which 
the physician or other qualified NPP may select from various available 
standardized screening tests designed for this purpose and recognized 
by national medical professional organizations.''
    Comment: Three commenters expressed the view that the proposed 
screening tests for falls risk and home safety in service element 3 
were not supported by direct scientific evidence, and should be dropped 
from the IPPE benefit in the final rule.
    Response: Falls are among the most common and serious problems 
facing elderly persons. They are associated with considerable morbidity 
such as hip fractures and overall reduced level of functioning. The 
USPSTF also notes that falls are the second leading cause of 
unintentional injury deaths in the United States. The death rate due to 
falls increases as a person ages. According to the National Center for 
Injury Prevention and Control, approximately one-half to two-thirds of 
all falls occur in and around a person's home. Therefore, discussing 
with patients home safety tips may reduce some home hazards. In 
addition, the USPSTF recommends counseling patients on specific 
measures to reduce the risk of falling, although direct evidence of 
effectiveness has not yet been established. Therefore, we believe that 
questioning and counseling patients to determine their risk of falling 
and home safety is warranted as part of the IPPE benefit.
    Comment: Several commenters from the audiology community have asked 
us to clarify the meaning of the proposed requirement in service 
element 3, which includes (among other things) a review of any hearing 
impairment. In addition, several commenters have requested that we 
clarify whether a hearing assessment is required as part of service 
element 3, or whether questions (or a questionnaire) advanced to an 
individual about any possible hearing problems would suffice for 
purposes of this part of the new benefit. The commenters ask for 
provider flexibility in meeting this requirement.
    Response: The regulatory intent of service element 3 is that we 
expect that the physician or qualified NPP will engage in a dialogue 
with patients concerning these issues by asking the individual 
appropriate questions or using a written questionnaire to address 
hearing impairment, activities of daily living, falls risk, and home 
safety. We do not intend for actual screening instruments such as 
audiometric screening tests to be used. After questioning the 
individual, if abnormalities are identified, additional follow-up 
services may be warranted and may include education, counseling, and 
referral (if appropriate.)
    Therefore, we are revising the language of service element 3 to 
read ``review of the individual's functional ability and level of 
safety, based on the use of appropriate screening questions or a 
screening questionnaire which the physician or qualified NPP may select 
from various available screening questions or standardized 
questionnaires designed for this purpose and recognized by national 
medical professional organizations.''
    Medically necessary diagnostic hearing tests, including hearing and 
balance assessment services, performed by a qualified audiologist are 
covered as other diagnostic tests under section 1861(s)(3) of the Act 
and would be separate from the new IPPE benefit. These services may be 
appropriate when a physician or other qualified NPP orders a diagnostic 
hearing test for the purpose of obtaining information necessary for the 
physician's diagnostic evaluation or to determine the appropriate 
medical or surgical treatment of a hearing deficit or related medical 
problem. However, coverage of this testing is excluded by virtue of 
section 1862 (a)(7) of the Act when the diagnostic information required 
to determine the appropriate medical or surgical arrangement is already 
known to the physician, or the diagnostic services are performed only 
to determine the need for the appropriate type of hearing aid. For 
further information about the application of the hearing test exclusion 
to diagnostic hearing tests and payment for these services, we suggest 
review of section 80.3 to 80.3.1 of the Medicare Benefit Policy Manual.
    Comment: Several commenters suggested that we expand the services 
to be included as part of service element 4 that was proposed for 
coverage under the IPPE benefit to include: (1) Palpitation/
auscultation of carotid arteries; (2) palpitation/auscultation of 
abdominal aorta; and (3) the ankle-brachial index (ABI) test for 
peripheral arterial disease (PAD).
    Response: Currently, routine screening of asymptomatic persons for 
carotid artery stenosis via palpation/auscultation of the carotid 
arteries or carotid ultrasound is not recommended by organizations such 
as the USPSTF, which provides guidelines on this issue. Therefore, we 
are not adding routine screening of asymptomatic individuals for 
carotid artery stenosis to service element 4 in the absence of evidence 
of the effectiveness of the screening. In addition, the USPSTF has 
determined that there is insufficient evidence to recommend for or 
against routine screening of asymptomatic adults for abdominal aortic 
aneurysm (AAA) by palpation/auscultation or ultrasound of the abdominal 
aorta so we are not adding that type of screening to service element 4.
    Finally, the USPSTF does not recommend routine screening for PAD in 
asymptomatic persons. However, they also state that clinicians, should 
be aware of symptoms and risk factors for PAD and evaluate patients 
accordingly. Therefore, routine screening for PAD with the use of the 
ABI will not be required as part of the initial preventive physical 
examination.
    Comment: One commenter asked for clarification on whether the 
proposed regulatory language ``and other factors deemed appropriate by 
the physician or qualified nonphysician practitioner,'' as specified in 
service element 4, would permit inclusion of coverage of a screening 
for chronic obstructive pulmonary disease (COPD) through spirometric 
testing under the IPPE benefit.
    Response: The intent of this language for the actual physical 
examination portion of the IPPE benefit is to leave to the discretion 
of the physician or other qualified NPP whether to perform commonly 
utilized physical examination measures such as auscultation of the 
heart or lungs on a particular patient, if needed. Spirometry as a 
screening test for COPD, however, would not be considered to fall 
within the scope of the physical examination element of the IPPE 
benefit.
    Comment: A number of commenters suggested that we add an assessment 
of abdominal obesity or alternatively the calculation of the body mass 
index (BMI) to the vital signs part of service element 4 to help in 
determining if an individual is at risk for a heart attack, diabetes, 
or other medical problems.
    Response: By requiring measurement of height and weight as part of 
the IPPE in element 4 (an examination to include

[[Page 66286]]

measurement of an individual's height, weight, blood pressure), we 
believe that the physician or other qualified NPP performing the IPPE 
will use that information to determine an individual's BMI if 
necessary.
    Comment: Three commenters expressed concern about the wide latitude 
given to physicians and other qualified NPPs providing the IPPE benefit 
to select whichever screening test they prefer to use in connection 
with the assessment of visual acuity. The commenters believe that 
setting vague boundaries around what constitutes an appropriate 
screening instrument could open the door for inappropriate use of 
preventive services. To avoid this, the commenters recommend narrowly 
defining the appropriate screening instrument for visual acuity in 
service element 4 by specifying the use of the Snellen test for that 
purpose.
    Response: We agree that the Snellen test is a widely available test 
used to assess a person's visual acuity. Other similarly available 
tests for visual acuity also exist, however, and may convey similar 
results for individual physicians and other clinicians. While we expect 
that many physicians will utilize the Snellen test in assessing a 
beneficiary's visual acuity for the purpose of this new benefit, we are 
not mandating the use of the Snellen test or any other specific visual 
acuity test in order to meet the requirements of element 4 in the final 
rule.
    Comment: One commenter noted that the proposed rule allows for 
coverage of the assessment in service element 4 of ``other factors as 
deemed appropriate based on the individual's comprehensive medical and 
social history.'' The commenter expressed the view that the quoted 
language might result in the possibility that virtually any patient's 
abnormality identified during the preventive physical examination might 
lead to further evaluation of the patient and a cascade of diagnostic 
workup of questionable health benefit to the patient and potentially of 
great cost to the Medicare program. In view of these concerns, the 
commenter recommended using more restrictive language that would allow 
for additional assessment of other factors only when they are supported 
by evidence-based clinical practice guidelines.
    Response: Our purpose in proposing the specific quoted language 
referenced in service element 4 was to allow for the physician or other 
qualified NPP to perform a limited physical examination of those key 
elements such as height, weight, blood pressure, and a visual acuity 
screen that may be important in detecting disease. However, we have 
specified that additional physical examination measures may be 
performed if deemed appropriate based on the issues identified by the 
physician or other clinician in the review of service elements 1 to 3. 
While we will not specify in the final rule that these additional 
measures must be supported by evidence-based practice guidelines, we 
will state that the practitioner performing the preventive examination 
follow current clinical standards and those guidelines, of course, may 
include the evidence-based guidelines referenced by the commenter.
    Comment: One commenter recommends that we include in our guidelines 
for the IPPE benefit information that informs the physician or other 
qualified NPP of: (1) The need to refer patients to occupational 
therapists when a more extensive evaluation of activities of daily 
living, falls risk, and home safety is warranted; and, (2) when, such 
referrals would be medically appropriate.
    Response: As part of the final rule, service element 6 of the IPPE 
benefit will require, education, counseling, and referral, as 
appropriate, based on the individual's results of the previous 5 
elements of the IPPE benefit. However, appropriate referral of a 
patient to an occupational therapist is left to the discretion of the 
physician or other qualified NPP who is treating the patient for the 
medical problem that is identified, subject to contractors' medical 
necessity review. We do not believe there is a need for us to issue 
guidelines to our contractors on this point.
    Comment: Several commenters indicated that they were concerned 
about use of the term ``counseling'' in service elements 6 and 7 of the 
definition of the IPPE because it lacked sufficient clarity. The 
commenters indicated that counseling may include varying amounts of 
time depending upon the intensity of the type of service provided, the 
ability of the individual receiving the counseling to understand the 
information that is being communicated, etc. The commenters suggested 
that either we not use the term counseling or clarify its meaning in 
the final rule.
    Response: Use of the term counseling in connection with service 
element 7 is mandated by section 611 of the MMA, and thus, it is 
appropriate to use the term in the final rule. However, we would like 
to clarify this issue in connection with both service elements 6 and 7 
of the new benefit. In most cases, we do not expect that the physician 
or other qualified NPP performing the service should need to spend more 
than a few minutes of brief education and counseling with a new 
beneficiary on appropriate topics as required by element 7. 
Nonetheless, it is possible that it may be necessary to spend more than 
a few minutes on the education and counseling required by element 6. As 
the commenters have indicated, the education and counseling required 
may involve varying amounts of time depending upon the medical problem 
or problems that are being considered, based on the results of elements 
1 to 5, and the intensity of the service that is believed to be 
medically necessary at that time.
    Comment: Three commenters indicated that they support proposed 
service element 6 on ``education, referral, and counseling deemed 
appropriate based on the results of the review and evaluation of 
services,'' in service elements 1 to 5 because it offers an 
unprecedented opportunity to counsel beneficiaries about health 
behaviors (for example, stopping smoking, losing weight). Nonetheless, 
they were concerned about possible over-utilization of services that 
might result from that provision, and suggest that we clarify that 
these education, counseling and referral efforts be concordant with 
evidence-based practice guidelines.
    Response: We will not specify in the final rule that education, 
counseling, and referral efforts must be consistent with evidence-based 
practice guidelines. We expect that physicians and other qualified NPPs 
will provide appropriate education, counseling, and referral that 
utilizes evidence-based practice guidelines and current clinical 
standards. In addition, follow-up care obtained outside of the IPPE 
Benefit must be reasonable and necessary based on Section 1862(a)(1)(A) 
of the Act.
    Comment: A number of commenters requested that we clarify the 
written plan provision of service element 7 that was included in the 
proposed rule. Several commenters indicated that two problems they see 
with this requirement are: (1) It is not clearly defined and thus could 
impose a significant burden on physicians and other clinicians, if it 
is not more carefully written; and, (2) it does not acknowledge that 
alternative mechanisms may already be in place that could better 
facilitate coordination of care for these beneficiaries than the 
proposed written plan requirement. For example, one commenter suggests 
that some physicians and other clinicians may currently be using 
electronic technology to track the delivery of preventive services and 
should not be

[[Page 66287]]

required to file written plans. Instead, the commenter recommends that 
we craft language to require physicians to demonstrate a system for 
ensuring that beneficiaries receive recommended screening and 
preventive services and allow physicians flexibility to determine the 
design and medium that such a system would employ.
    Response: We agree that the term written plan may not offer a 
sufficiently clear description of our intentions in requiring the 
physician or other qualified NPP who also performs the IPPE to carry 
out the statutory mandate that eligible beneficiaries be provided with 
education, counseling, and referral for screening and other preventive 
services described in section 1861(ww)(2) of the Act. Our intent in the 
proposed rule was that each physician or other qualified NPP provide 
their eligible beneficiaries at the time of the examination with 
appropriate education, counseling, and referral(s), including a brief 
written plan such as a checklist, which is provided to the beneficiary 
for obtaining the appropriate screening and/or other preventive 
services that are covered as separate Medicare Part B benefits to which 
he or she is entitled. We acknowledge that physicians or qualified NPPs 
may have an alternative mechanism in place to ensure that beneficiaries 
receive recommended screening and other preventive services that does 
not provide for a written plan to be provided to the beneficiary. 
However, the intent of the written plan requirement is to promote and 
encourage beneficiary participation in the health care process by 
making them aware, briefly in writing of the screening and prevention 
services for which they are entitled under the Medicare Part B program.
    In conclusion, we will revise service element 7 to read 
``education, counseling, and referral, including a brief written plan 
such as a checklist, be provided to the individual for obtaining 
appropriate screening and other preventive services, which are 
separately covered under Medicare Part B benefits.''

The ``Physician'' Definition (Sec.  410.16(a))

    Comment: One commenter expressed concerns regarding the definition 
of a physician. The commenter expressed concern that the proposed rule 
limits the type of practitioner who is considered qualified to perform 
the new preventive physical examination. The commenter states that this 
restriction was not specified by the Congress in section 611 of the MMA 
or its accompanying conference committee report, and suggests that it 
should be revised to allow all practitioners, including doctors of 
podiatric medicine, who are defined as a physician under section 
1861(r) of the Act, to be considered qualified to perform the 
preventive physical examination.
    Response: Section 611 of the MMA amended the statute to provide 
that payment for the IPPE must be made under the Medicare physician fee 
schedule, as provided in section 1848(j)(3) of the Act, but it did not 
specifically define what type of physician is eligible for performing 
this examination. In developing the proposed rule on which physicians 
are considered qualified to perform the IPPE, we considered the various 
types of physicians that are identified in section 1861(r)(2), (r)(3), 
(r)(4), and (r)(5) of the Act. These include doctors of dental surgery, 
doctors of podiatric medicine, doctors of optometry, and chiropractors, 
whose scope of medical practice is generally limited by State law to a 
particular part (or parts) of the human anatomy.
    These state licensing restrictions would likely make it difficult 
for those practitioners to perform all of the services required. Based 
on this information, we are leaving the definition of a physician 
unchanged in the final rule.

The ``Qualified Nonphysician Practitioner'' Definition (Sec.  
410.16(a))

    Comment: One commenter indicated concern that in the proposed rule 
certified nurse-midwives (CNMs) are not eligible to furnish the new 
preventive physical examinations, but physicians and certain other NPPs 
are eligible to provide those services to Medicare beneficiaries. The 
commenter indicates that CNMs are fully qualified to provide physical 
examination and checkups covered by the statute and that they do so on 
a daily basis as a basic component of the care they provide their 
clients. The commenter states that we may be constrained by the statute 
as enacted by Congress on this subject, but suggests that we should 
review the issue and if possible revise the proposed rule to include 
CNMs among those who are considered to be eligible to provide the new 
service in the final rule.
    Response: Section 611 of the MMA amended the statute to provide 
that in addition to physicians certain NPPs, that is, PAs, NPs, and CNS 
(as authorized under section 1861(s)(2)(K)(i) and (ii) of the Act, and 
defined in section 1861(aa)(5) of the Act, or in regulations at Sec.  
410.74, Sec.  410.75, and Sec.  410.76) will be able to furnish the new 
preventive physical examination to eligible beneficiaries effective 
January 1, 2005. Thus, Congress did not specifically authorize CNMs to 
perform the IPPE. Unless CNMs are able to qualify as one of these other 
types of NPPs designated by the statute for purposes of the new IPPE 
benefit, they will not be eligible to provide this service to 
beneficiaries for Medicare Part B coverage purposes.

Other Issues

    Comment: One commenter requested that we clarify application of the 
proposed IPPE definition to managed care plans where preventive 
physical examinations are available to Medicare enrollees on an annual 
basis and they are not limited to a one-time benefit. Generally in the 
case of managed care plans, it is indicated that the extent of their 
typical annual preventive examination is determined by the enrollee's 
physician or other treating physician, depending upon the patient's 
history and clinical indications. The commenter asks that we allow 
managed care plans greater flexibility in providing their Medicare 
enrollees with the various service elements described in the proposed 
rule. Alternatively, the commenter requests that we clarify in the 
final rule that managed care plans will need to provide their Medicare 
enrollees with all elements of the new benefit only if requested to do 
so by a particular Medicare enrollee.
    Response: Section 611 of the MMA requires that IPPEs be made 
available to all Medicare beneficiaries who first enroll in Medicare 
Part B on or after January 1, 2005, and who receive that benefit within 
6 months of the effective date of their initial Part B coverage period. 
The new statute does not allow for any exceptions to be made to the 
coverage of IPPEs for beneficiaries who are members of managed care 
plans. In fact, section 1852(a) of the Act provides that generally each 
managed care plan must, at a minimum, provide to its Medicare members 
all of those items and services (other than hospice care) for which 
benefits are available under Parts A and B for individuals residing in 
the area served by the plan. Nonetheless, if a particular Part B member 
of the plan chooses not to take advantage of the IPPE benefit, for 
example, because it would duplicate an annual preventive physical exam 
that has already been provided to that member, the plan would not be 
obligated to provide the IPPE to that member.
    Comment: One commenter noted that while the screening benefits 
listed in paragraph (A)(1) on Federal Register

[[Page 66288]]

page 47514 (vol. 69, No. 150) includes ``(5) colorectal cancer 
screening test,'' the list of screening benefits described in the same 
section, paragraph (7) on page 47515 does not include that type of 
cancer screening test. The commenter requests that we include 
colorectal cancer screening in the list of screening services described 
on page 47515 of the Physician Fee Schedule Proposed Rule and any other 
sections of any proposed rule in which covered screening benefits are 
listed to ensure there is no confusion regarding what services should 
discussed with patients during the IPPE.
    Response: We agree with the commenter that there was an error of 
omission relative to colorectal cancer screening in the language in the 
preamble to the proposed rule in the list of screening benefits 
described on page 47515 of the Physicians Fee Schedule, and we have 
corrected that oversight in this final rule.
    Comment: One commenter requests that we clarify the part of the 
definition of the IPPE (service element 7) that refers to the provision 
of education, counseling, and referral of the individual for coverage 
of bone mass measurements by adding the term ``Dual Energy X-Ray 
Absorptiometry'' (DEXA) to that provision. The commenter states that 
DEXA testing is the most accurate method available for diagnosis of 
osteoporosis and that early detection of this condition paramount for 
preventing further bone loss and eventual fractures. The commenter is 
concerned that unless this is clarified in the final rule, local 
Medicare contractors may exclude coverage for the DEXA test as part of 
the IPPE benefit.
    Response: Our existing regulations governing bone mass measurements 
are published in Sec.  410.31. While we agree that the DEXA scan is a 
very commonly used method for the initial diagnosis of osteoporosis, we 
do not believe that it would be appropriate to add any specific 
reference to the DEXA test in the IPPE definition because it may be 
perceived as endorsing one test over another. We do not believe this 
would be appropriate. Physicians and other qualified NPPs who perform 
IPPE services may provide appropriate education, counseling, and 
referral of their Medicare patients for the bone density tests. The 
counseling and referral may include choosing the appropriateness of the 
diagnostic modalities for the particular patient.
    Comment: A number of commenters have asked us to provide 
information to Medicare physicians and qualified NPPs performing the 
IPPE for appropriate referral of their patients when treatment or a 
more extensive evaluation of patients is needed as part of service 
element 6.
    Response: As part of the final rule, under service element 6, 
providers are required to furnish their patients with education, 
counseling, and referral, as appropriate, based on the individual's 
results of service elements 1-5 of the IPPE service. However, 
appropriate referral of a patient, of course, is left to the discretion 
of the physician or other qualified NPP who is treating the patient for 
the medical problem that is identified.
    Comment: One commenter asked us how we plan to monitor the 
effectiveness of the IPPE benefit over the next several years.
    Response: As indicated in the final rule, we have established 
unique billing codes for the IPPE service which physicians and other 
qualified NPPs must use in billing Medicare Part B for the new service. 
Establishing those codes will allow us to monitor over time the extent 
to which the eligible Medicare Part B population is utilizing the new 
service, which will be of interest to our program administrators, 
members of the Congress, and the general public.
    Comment: One commenter asked how providers of IPPE services will 
know if a particular beneficiary is eligible to receive the new benefit 
due to the statutory time and coverage frequency (one-time benefit) 
limitations.
    Response: The statute provides for coverage of a one-time IPPE 
benefit that must be performed for new beneficiaries by qualified 
physicians or certain specified NPPs within the first 6 months period 
following the effective date of the beneficiary's first Part B 
coverage. Since physicians or other qualified NPPs may not have the 
complete medical history for a particular new beneficiary, including 
information on possible use of the one-time benefit, these clinicians 
are largely relying on their own medical records and the information 
the beneficiary provides to them in establishing whether or not the 
IPPE benefit is still available to a particular individual and was not 
performed by another qualified practitioner. Since a second IPPE will 
always fall outside the definition of the new Medicare benefit, an 
advance beneficiary notice (ABN) need not be issued in those instances 
where there is doubt regarding whether the beneficiary has previously 
received an IPPE. The beneficiary will always be liable for a second 
IPPE no matter when it is conducted. However, for those instances where 
there is sufficient doubt as to whether the statutory 6-month period 
has lapsed, the physician or other qualified NPP should issue an ABN 
indicating that Medicare may not cover and pay for the service. If the 
physician or other qualified NPP does not issue an ABN and Medicare 
denies payment because the statutory time limitation for conducting the 
initial IPPE has expired, then the physician or other qualified NPP may 
be held financially liable.
    Comment: Several commenters asked that we provide explicit 
instructions and guidelines, respectively, to providers and 
beneficiaries regarding the details of what will be included in the new 
benefit, the eligibility requirements, and how providers must bill 
Medicare for the new service.
    Response: Medicare will release appropriate manual and transmittal 
instructions and information from our educational components for the 
medical community, including a MedLearn Matters article and fact sheets 
like the ``2005 Payment Changes for Physicians and Other Providers: Key 
News From Medicare for 2005''. The medical community can join this 
effort in educating physicians, qualified NPPs, and beneficiaries by 
distributing their own communications, bulletins or other publications.
    In addition, we have specifically included information on the new 
IPPE benefit in the 2005 version of the Medicare and You Handbook and 
the revised booklet, Medicare's Preventive Services. A new 2-page fact 
sheet on all of the new preventive services, including the IPPE 
benefit, is currently under development, and a bilingual brochure for 
Hispanic beneficiaries will also be available in the new future. This 
information will be disseminated by our regional offices, State Health 
Insurance Assistance Programs (SHIPs), and various partners at the 
national, State, and local levels. Information on the new benefit will 
also be made available to the public through medicare.gov, the cms.gov 
partner Web site, 1-800-MEDICARE, numerous forums hosted by CMS, and 
conference exhibits and presentations.
    Comment: Many of the major physician specialty societies believe 
the payment, as proposed, is undervalued for what is believed to be a 
labor-intensive IPPE. They request that we use the existing CPT 
preventive medicine services code series rather than creating a new G-
code. These codes have higher RVUs than the office or other outpatient 
visit code 99203. For example, preventive medicine services visit code 
99387 has total nonfacility RVUs of 4.00 while the corresponding value 
for 99203 is 2.58.
    Response: The existing CPT preventive medicine services codes

[[Page 66289]]

(99381-99397) are not covered by Medicare. In accordance with section 
1862(a)(1)(A) of the Act that requires us to pay only for services that 
are reasonable and necessary for the treatment of an illness or injury 
or to improve the function of a malformed body member, we have not 
covered E/M visits for screening purposes.
    The IPPE is intended to target selected modifiable risk factors and 
secondary prevention opportunities shown by evidence to improve the 
health and welfare of the beneficiary, and is less focused on a 
comprehensive physical examination compared to the typical service 
provided in accordance with CPT code 99397. We equated the resources 
anticipated with this service to the existing new office or other 
outpatient visit. For CPT code 99203 the RUC survey data shows 53 
physician minutes (including pre-service time, intra-service time and 
post-service time) with 51 minutes of staff time. We believe the IPPE 
will reflect these time approximations. We will be looking at the data 
and consulting with the medical community after initial experience with 
this new benefit to determine if this payment has been valued 
appropriately.
    Comment: Two commenters suggested that we allow the IPPE either on 
a yearly basis or every decade after the initial evaluation.
    Response: The IPPE was specifically legislated as a one time only 
benefit for the beneficiary newly enrolled in the Medicare program. 
This visit familiarizes the beneficiary with a physician or qualified 
NPP who will highlight the assessments available to help prevent and 
detect disease and also make available the educational, counseling and 
referral opportunities to the new Medicare recipient. Our policy 
anticipates physicians will make appropriate and individualized 
referrals for the beneficiary. Expanding the number of routine 
physicals would require additional legislation (See section 1862(a)(7) 
of the Act).
    Comment: Many commenters asked if the IPPE may be provided without 
performing the EKG at the same visit. They asked to have the EKG 
component unbundled from the evaluation and management component that 
had been specified in the proposed rule for the IPPE service since a 
physician may not have the equipment and capability of providing EKG 
services to their patients in the office suite or clinic. Additionally, 
others asked if a physician would be denied payment for the IPPE if the 
screening EKG was not performed because a diagnostic EKG was performed 
in a recent visit or if a diagnostic EKG was warranted at the IPPE 
visit.
    Response: Section 611 of the MMA does require a screening EKG to be 
performed as part of the IPPE visit. We recognize that there are a 
number of primary care physicians or other clinicians furnishing the 
service who may want to refer their beneficiaries to outside 
practitioners or entities for performance and interpretation of the EKG 
service rather than performing it themselves. Therefore, if an 
individual physician or other qualified NPP does not have the capacity 
to perform the EKG in the office suite, then alternative arrangements 
will need to be made with an outside physician or other entity in order 
to make certain that the EKG is performed. In circumstances where the 
primary care physician or qualified NPP refers the beneficiary to an 
outside physician or entity for the EKG service, we expect that the 
primary care physician or qualified NPP will incorporate the results of 
the EKG into the beneficiary's medical record to complete the IPPE. 
Both components of the IPPE, the examination portion and the EKG, must 
be performed for either of the components to be paid. Billing 
instructions for physicians, qualified NPPs and providers will be 
issued. In order to address these potentially occurring scenarios to 
complete the IPPE and EKG we have created the following HCPCS codes:
     G0344: Initial preventive physical examination; face-to-
face visit services limited to new beneficiary during the first six 
months of Medicare enrollment
     G0366: Electrocardiogram, routine ECG with at least 12 
leads with interpretation and report, performed as a component of the 
initial preventive physical examination
    A physician or qualified NPP performing the complete service would 
report both G0344 and G0366.
     G0367: tracing only, without interpretation and report, 
performed as a component of the initial preventive physical examination
     G0368: interpretation and report only, performed as a 
component of the IPPE
    RVUs for payment for these new HCPCS codes will be crosswalked from 
the following CPT codes:
     G0344 will crosswalk from CPT code 99203 (Office or other 
outpatient visit)
     G0366 will crosswalk from CPT code 93000 
(Electrocardiogram, routine ECG with at least 12 leads; with 
interpretation and report)
     G0367 will crosswalk from CPT code 93005 
(Electrocardiogram, routine ECG with at least 12 leads; tracing only, 
without interpretation and report)
     G0368 will crosswalk from CPT code 93010 
(Electrocardiogram, routine ECG with at least 12 leads; interpretation 
and report only)
    Note that HCPCS codes G0366 and G0367 are not payable under the 
physician fee schedule in the facility setting.
    To comply with MMA the IPPE must include the EKG regardless of 
whether a diagnostic EKG was recently performed. An EKG performed by 
the physician or qualified NPP during the IPPE visit must be reported 
with HCPCS code G0366. Medicare does not cover a screening EKG alone.
    Comment: One commenter asked if physicians and qualified NPP who 
see patients in Federally Qualified Healthcare Centers (FQHCs) will be 
able to provide and bill under the FQHC all-inclusive rate.
    Response: Physicians and other qualified NPPs in RHCs and FQHCs may 
provide this new benefit and follow normal procedures for billing for 
RHCs and FQHC services. Payment for the professional services will be 
made under the all-inclusive rate.
    Comment: Many physician specialty societies did not agree with our 
proposal to limit the level of a medically necessary E/M visit when 
performed and billed with the IPPE. They contend that most Medicare 
patients, even if known to their physician, come to the IPPE visit with 
multiple chronic problems often necessitating immediate evaluation and 
treatment at a level of care equal to a level 4/5 E/M visit code. They 
also state that current Medicare policy does permit a medically 
necessary E/M visit at whatever level is appropriate when the 
noncovered preventive medicine services (CPT codes 99381-99397) are 
performed. They ask that we eliminate the restriction for the level of 
service for a medically necessary E/M visit performed at the same visit 
as the IPPE visit.
    Response: The physician will need to schedule time with the 
beneficiary identifying the available preventive and educational 
opportunities. A level 2 new or established patient office or other 
outpatient visit code was proposed because we believe there is a 
substantial overlap of practice expense, malpractice expense and 
physician work in both history taking and examination of the patient 
with the IPPE and another E/M service. We do not want to prohibit the 
use of an appropriate level of service when it is necessary to evaluate 
and treat the beneficiary for acute and chronic

[[Page 66290]]

conditions. At the same time, we believe the physician is better able 
to discuss health promotion, disease prevention and the educational 
opportunities available with the beneficiary when the health status is 
stabilized and the beneficiary is physically receptive.
    We will remove the restriction limiting the medically necessary E/M 
service to a level 2 visit code. CPT codes 99201 through 99215 may be 
used depending on the circumstances and appended with CPT modifier ``25 
identifying the E/M visit as a separately identifiable service from the 
IPPE code G0344 reported.
    We do not believe this scenario will be the typical occurrence and, 
therefore, we will monitor utilization patterns for the level 4/5 new 
or established office or other outpatient visit codes being reported 
with the IPPE. If there are consistent data that demonstrate high usage 
of level 4/5 E/M codes we may need to revise the policy.
    Comment: Two commenters asked if we would permit separate payment 
for a digital rectal exam (DRE) when performed on the same day as the 
initial preventive physical examination.
    Response: Currently Medicare does not make separate payment for DRE 
(code G0102) when performed on the same day as an E/M service. We will 
maintain the current policy and not pay separately for a DRE performed 
during the IPPE visit. A DRE is usually furnished as part of an E/M 
service and is bundled into the payment for an E/M service when a 
covered E/M service is furnished on the same day as a DRE. It is a 
relatively quick and simple procedure and if it is the only service 
furnished or is provided as part of an otherwise noncovered service it 
would be payable if coverage requirements are met.
    Comment: Several commenters requested guidance on documentation.
    Response: It is expected that the physician will use the 
appropriate screening tools. As for all E/M services, the 1995 and 1997 
E/M documentation guidelines must be followed for recording information 
in the patient's medical record. The screening tools used, EKG 
documentation, referrals and a written plan for the patient also must 
be included in the patient's medical record. These forms and methods of 
documentation mirror those that would be used in typical physician 
practice with patient visits and do not add an additional burden to the 
physician.
    Comment: Several commenters expressed concern that the non-waived 
deductible and coinsurance will be a disincentive to the beneficiary 
having the IPPE. They are concerned that some beneficiaries will not 
avail themselves of the opportunity of the IPPE visit because of the 
beneficiary's cost share.
    Response: The MMA did not waive the deductible and coinsurance, 
therefore, we must implement the provision as written.

Result of Evaluation of Comments

    In view of the comments, we have decided to make several revisions 
in Sec.  410.16(a) relative to service elements 1, 2, and 3. We are 
revising Sec.  410.16(a)(1)(i) language in service element 1 to read as 
follows: ``Review of the individual's medical and social history with 
particular attention to modifiable risk factors for disease.''
    We are clarifying the regulation language on depression screening 
(service element 2) by revising Sec.  410.16(a)(1)(ii) to specify that 
review of the individual's potential (risk factors) for depression, 
including current or past experience with depression or other mood 
disorders, based on the use of an appropriate screening instrument for 
persons without a current diagnosis of depression, which the physician 
or other qualified NPP may select from various available standardized 
screening tests designed for this purpose and recognized by national 
medical professional organizations. To allow for a certain amount of 
provider flexibility in meeting the requirements of the regulatory 
intent of service component 3 we are revising Sec.  410.16(a)(1)(iii) 
to specify that review of the individual's functional ability and level 
of safety, based on the use of appropriate screening questions or a 
screening questionnaire, which the physician or qualified NPP may 
select from various available screening questions or standardized 
questionnaires designed for this purpose and recognized by national 
medical professional organizations.
    To clarify the requirements of the regulatory intent of service 
component 7 we are revising Sec.  410.16(a)(1)(vii) to specify that 
education, counseling, and referral, including a brief written plan 
such as a checklist be provided to the individual for obtaining the 
screening and other preventive services for the individual that are 
covered as separate Medicare Part B benefits.
    The ``social history'' definition in the final rule will be revised 
to include 3 elements:
     History of alcohol, tobacco, and illicit drug use.
     Diet.
     Physical activities.
    With regard to payment of the IPPE, we will use the new HCPCS codes 
and payment will be based on the RVUs of the CPT codes crosswalked as 
stated above. We will not finalize our proposal to allow a medically 
necessary E/M service no greater than a level 2 to be reported at the 
same visit as the IPPE.

B. Section 613--Diabetes Screening

    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 of 
the MMA as testing furnished to an individual at risk for diabetes and 
includes a fasting blood glucose test and other tests. The Secretary 
may modify these tests, when appropriate, as the result of 
consultations with the 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 proposed in Sec.  410.18 that Medicare cover--
     A fasting blood glucose test; and
     Post-glucose challenge tests; either an oral glucose 
tolerance test with a glucose challenge of 75 grams of glucose for non-
pregnant 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.
    The statutory provision describes an ``individual at risk for 
diabetes'' as having any of the following risk factors:
     Hypertension.
     Dyslipidemia.
     Obesity, defined as a body mass index greater than or 
equal to 30 kg/m2.
     Previous identification of an elevated impaired fasting 
glucose.
     Previous identification of impaired glucose tolerance.
     A risk factor consisting of at least two of the following 
characteristics:
    + Overweight, defined as a body mass index greater than 25 kg/m2, 
but less than 30.
    + A family history of diabetes.

[[Page 66291]]

    + A history of gestational diabetes mellitus or delivery of a baby 
weighing greater than 9 pounds.
    + 65 years of age or older.
    For individuals previously diagnosed as diabetic, there is no 
coverage under this statute.
    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 proposed 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 defined ``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, concurs with the Centers for Disease Control and 
Prevention (CDC) definition, and complements the definition of diabetes 
that we published November 7, 2003 (68 FR 63195).
2. Payment
    We proposed to pay for diabetes screening 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 proposed to pay for these tests 
under CPT code 82947 Glucose; quantitative, blood (except reagent 
strip), CPT code 82950, post glucose dose (includes glucose), 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 proposed 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.
    Comment: One commenter questioned whether there is statutory 
authority to expand eligibility for individuals. Adding that, section 
613 of the MMA gives authority for additional test and frequency, not 
additional individuals.
    Response: There is no statutory authority to expand eligibility for 
individuals. Section 613 of the MMA establishes coverage for 
beneficiaries who are at risk for developing diabetes. Beneficiaries 
who are pre-diabetic fall within 1861(yy)(2)(D) or (E) and are at an 
increased risk for developing diabetes. This increased risk separates 
them from the general at-risk population and requires the course of 
their care to be managed closer and more frequently.
    For individuals not meeting the ``pre-diabetes'' criteria, we 
proposed that one diabetes screening test be covered per individual per 
year.
    Comment: Several comments were received that recommended we provide 
physicians with clear guidance about Medicare's covered services to 
help patients control their diabetes. The commenters also asked that we 
inform providers about other covered services, such as Hgb1AC tests, 
that will help patients avoid painful diabetes-related complications.
    Response: We will be releasing two publications. The Dear Doctor 
Package publication, which includes the ``2005 FACT SHEET'', will be 
sent to the contractors on a CD on or about October 15, 2005 and 
distributed to the providers by November 15, 2005. The Medicare 
Coverage of Diabetes Services and Supplies publication was originally 
written in 2002. It was revised in 2003 to update the Part B premium 
amount and is being revised again this year to update the premium 
amount and to include any information relevant to the MMA. This 
document will be available on the CMS Web site and at 1-800-MEDICARE.
    Comment: We received several comments suggesting that screening 
should not require a physician's prescription or referral in order to 
be covered under Medicare Part B. This approach would follow the 
successful precedent established by us with other screening tests such 
as mammograms.
    Response: The legislative history on mammography did result in us 
allowing self-referral for mammograms. However, Medicare rules have 
required that laboratory tests for screening or other diagnoses must be 
ordered by licensed health care practitioners, specifically physicians, 
PAs, NPs, or CNSs.
    Comment: Comments were received recommending that the final rule 
include coverage of one annual diabetes screening for all Medicare 
beneficiaries.
    Response: The benefit of screening all Medicare beneficiaries is 
not supported by current evidence. We plan risk-based frequency 
limitations of coverage for diabetes screening based upon the statute 
requirements. Furthermore, we believe beneficiaries with pre-diabetes 
may warrant a more frequent follow-up and this is permitted at the 
professional judgment of the health care practitioner.
    Comment: We received a few comments suggesting the addition of the 
C-peptide test, as it is sometimes useful in Type 1 or Type 2 diabetes.
    Response: We believe that C-peptide testing is appropriate for 
diagnostic evaluation, but not for screening. It is currently covered 
under the general lab benefit as a diagnostic test when it is medically 
necessary.
    Comment: The American Society for Clinical Pathology (ASCP) has 
urged us to add CPT 82950 glucose; post glucose dose (includes 
glucose). This test is more frequently used to screen for diabetes. GTT 
is a more definitive test usually requested when questionable results 
from random, fasting or postprandial glucose levels are obtained. As 
written, the proposed rule appears to exclude 82950 as a screening 
test.
    Response: We appreciate attention being drawn to the apparent 
exclusion of CPT code 82950, which was not our intention and we have 
corrected that omission.
    Comment: A commenter suggested that due to increased incidence of 
obesity in recent years that family history of diabetes be defined as 
persons with Type 2 Diabetes in one or more first or second-degree 
relatives.
    Response: The comments received did not provide a clear consensus 
on the definition of family history of diabetes. Thus the definition of 
family history of diabetes will be left to the professional judgment of 
the treating physician or qualified non-physician practitioner based on 
the beneficiary's medical history and best practice standards.
    Comment: The American Clinical Laboratory Association (ACLA) 
believes that the other codes on the NCD routine screening list that 
currently result in a diabetes denial on the basis of routine screening 
should be covered under the new diabetes screening benefit.
    Response: We believe the majority of individuals who will seek care 
under this benefit will conform to the V77.1 code. We are willing to 
review a sample of claims and determine if other specific codes are 
appropriate code for this benefit. Codes that need to be considered for 
this new benefit can be brought to our attention through the national 
coverage determination process for laboratories.
    Comment: A comment was received recommending that the proposed rule 
be clarified to refer to a ``fasting blood glucose test'' rather than a 
``fasting plasma glucose test'' since the CPT code

[[Page 66292]]

does not differentiate between blood and plasma.
    Response: We agree with the recommendation to change the term 
``fasting plasma glucose test'' to ``fasting blood glucose test''.
    Comment: A comment was received recommending additional diabetes 
screening tests be added through a less formal process of consultation 
with manufacturers, health care providers, patients, and other 
stakeholders, as contemplated by Congress. The commenter further stated 
that the NCD process is complex and time consuming, delaying the 
coverage of new tests.
    Response: We believe the evidence-based NCD process is an effective 
process to review and analyze items and services as potential benefits 
for Medicare beneficiaries. Because the NCD process allows for public 
comment before we make any changes, we believe this is the appropriate 
process for any future changes. Further, we may not be able to accept 
every stakeholder's recommendation because of instructional, coding, or 
claims issues which must be resolved before any benefit can be 
implemented.

Result of Evaluation of Comments

    Our review of the comments has led to the elimination of the word 
``plasma'' from the term ``fasting plasma glucose test.'' The word 
``plasma'' will be replaced with the term ``blood''. We have corrected 
the unintentional omission of CPT code 82950, post glucose dose 
(includes glucose) as a diabetes screening test. The providers and 
beneficiaries are reassured that there will be clear guidance on 
covered services by way of two publications: The Dear Doctor Package, 
which includes the ``2005 Fact Sheet'' and Medicare Coverage of 
Diabetes Services and Supplies. We continue to promote healthcare 
practitioner autonomy with our policy of risk-based frequency 
limitations on items and services provided to our beneficiaries. We 
recognize the differing opinions with regard to the usage of the NCD 
process to review potential new items and services such as new diabetes 
screening tests for our beneficiaries. To provide transparency, 
timeliness and fairness, a formal process is necessary. Historically, 
the NCD process has been open to all interested parties and has proven 
to be an effective process.
    Based on reasoning from the responses to the comments we received, 
at this time we will not be accepting the following suggestions.
     Reversing policy requiring a physician's or a qualified 
non-physician's prescription or referral for diabetes screening tests.
     Providing coverage of one annual diabetes screening test 
for all Medicare beneficiaries.
     Adding coverage of C-peptide test as a screening test.
     Bypassing the current NCD process for a less formal 
process to add additional diabetes screening tests.

C. Section 612--Cardiovascular Screening

    Section 612 of the MMA adds section 1861(xx) to the Act and 
provides for Medicare coverage of cardiovascular (CV) screening blood 
tests for the early detection of CV disease or abnormalities associated 
with an elevated risk for that disease effective on or after January 1, 
2005.
    Upon reviewing the USPSTF reports, the scientific literature and 
comments of professional societies, trade associations, the industry, 
and the public, we proposed in the August 5, 2004 Federal Register, 
that the benefit for CV screening would include the use of three 
clinical laboratory tests to detect early risk for CV disease. Since 
the three tests, a total cholesterol, a HDL-cholesterol, and a 
triglycerides test, could be ordered as a lipid panel or individually, 
the frequency was limited to one of each individual test or combination 
as a panel every 5 years.
    When we researched the benefit, some scientific experts proposed 
that the use of only the total cholesterol test as a single test every 
2 years was adequate. After reviewing the literature and comments, we 
concluded that each test in the lipid panel is important since each 
test predicts the risk for CV disease independently. It would be 
prudent, therefore, to promote the benefit as three separate tests 
every 5 years. The decision to limit the frequency to 5 years, rather 
than more frequent testing every 2 years was due to information found 
in the Clinical Considerations of the USPSTF which indicate that the 
cholesterol values of elderly persons, who are the majority of the 
Medicare population, change slowly as they age. We also proposed that 
any changes to the list of tests could be made after a review of 
recommendations by the USPSTF and the use of the NCD process.
    We proposed that for the claims processing and payment system, the 
coding of the tests would be made using the CPT codes available for the 
lipid panel or the three tests individually coded with the use of V 
codes to identify the tests were ordered for screening purposes. We 
also stated that we would pay for these CV screening tests at the same 
amounts paid for these tests to diagnose an individual with signs of CV 
disease and that these would be paid under the clinical laboratory fee 
schedule. The proposed coverage requirements were set forth in new 
Sec.  410.17.
    In response to the proposed rule, we received letters and e-mails 
from 28 commenters representing professional societies, trade groups, 
the industry, and individuals, who wrote on 26 different issues. One 
commenter represented 14 medical societies. Each commenter had many 
concerns and the comments were grouped into 26 areas of concern.
    Comment: Three commenters expressed concern that many laboratories 
perform direct measurement LDL reflexively when triglycerides exceed 
certain parameters. The commenters are concerned that if screening 
direct measurement LDL is statutorily excluded then the Medicare 
beneficiaries would be liable for these tests without prior notice.
    Response: Section 410.32 requires that tests be ordered by a 
treating physician and used in the management of the patient. We have 
interpreted this provision to restrict the furnishing of reflex testing 
to situations where it is clear that the physician is ordering reflex 
testing at specific parameters and where the physician has an option to 
order the test without the reflex portion. Thus, laboratories must 
offer physicians the ability to order a lipid panel without the option 
to perform the direct measurement LDL. We strongly encourage physicians 
to order lipid panels without the direct measurement LDL reflex option 
to protect Medicare beneficiaries from incurring a charge for this 
service without advanced notice.
    If the screening lipid panel results indicate a triglyceride level 
that indicates the need for a direct measurement LDL, the physician may 
order this test once the results of screening lipid panel are reported. 
The NCD for lipid testing includes coverage of direct measurement LDL 
for patients with hyperglyceridemia. [http://www.cms.hhs.gov/ mcd/

viewncd.asp ?ncd--id=190.23&ncd-- version=1&show=all]
    We do not require the patient to physically return to the treating 
physician for an office visit and ordering of subsequent testing. 
Physicians may order such tests based on the results of the CV 
screening. The Medicare law and regulations do not prohibit the use of 
the same sample of blood to be used for direct measurement LDL 
following a lipid panel with very high triglycerides. Laboratories may 
archive the initial specimen and use it

[[Page 66293]]

for subsequently ordered medically necessary direct measurement LDL.
    Comment: One commenter suggested that if the direct LDL cholesterol 
is included in the CV risk screening benefit, we must provide guidance 
to laboratories regarding whether or not the direct LDL must be billed 
with the -59 modifier for the charge to be reimbursed.
    Response: Since the direct LDL cholesterol is not being added to 
the CV screening benefit, there is no change to the billing.
    Comment: One commenter requested that the V codes (V81.0, V81.1, 
and V81.2) be added to the Lipid NCD and that the NCD Edit Software be 
modified to accept these V codes (V81.0, 81.1, and 81.2) on a frequency 
basis.
    Response: The Laboratory NCD Edit Module will be modified to accept 
the V codes for matching the CPT codes with the ICD-9-CM code for those 
tests within the lipid NCD that are part of this statutory benefit. The 
entire lipid NCD is not open for modification. The frequency is 
determined by the NCD process and implemented through changes to the 
claims processing system to edit the patient history and coding.
    Comment: One commenter asked that Medicare contractors provide 
explicit instructions to physicians to provide the necessary V codes 
(or their corresponding narratives) since screening is normally non-
covered.
    Response: We will release the appropriate manual, transmittal 
instructions and information from our educational components for the 
medical community including a MedLearn Matters article and fact sheets 
such as the ``2005 Payment Changes for Physicians and Other Providers: 
Key News From Medicare for 2005.'' Laboratories can join this effort to 
educate physicians and beneficiaries by distributing their own 
communication, bulletins or other publications. Some of this 
information will also be part of the ``Welcome to Medicare Preventive 
Services Package.''
    Comment: Three commenters recommended that high sensitivity C-
reactive protein (hsCRP) be considered as a test for this benefit since 
the AHA and CDC issued a Class IIa recommendation stating that hsCRP 
measurements for risk stratification add important information to the 
``classic'' cholesterol and HDL measurement. They cited that given 
Congressional intent, we should include this measure in its list of 
``approved'' screening tests and, if not, that we immediately request 
that USPSTF conduct a formal review of hsCRP as a screening test. Four 
commenters recommended the addition of the ABI test. Another requested 
the inclusion of the 12-lead ECG, the echocardiogram, and tests for 
carotid artery disease. Another requested the coverage of blood 
pressure screening. Finally, another commenter suggested that we allow 
the broadest access and maximize the potential for tests.
    Response: We appreciate the commenters' suggestions to include 
hsCRP and the other tests. In our efforts to develop the proposed rule, 
many tests were considered for inclusion in the list of screening tests 
for this benefit. There was insufficient evidence to include any 
additional tests beyond the lipid panel tests. The information we 
received in the development of the proposed rule did not support the 
inclusion of these additional tests but we invite the public to submit 
scientific literature for our consideration. Other new types of CV 
screening blood tests may be added under this new screening benefit if 
we determine them appropriate through a subsequent NCD. 68 FR 55634 
(Sept 26, 2003) or http://www.cms.hhs.gov/coverage/8a.asp].

    Comment: Two commenters recommended that we add HCPCS codes for the 
Lipid Panel and components as waived tests since they are performed in 
physician offices and other sites with Clinical Laboratory Improvement 
Amendments (CLIA) Certificates of Waiver.
    Responses: Under CLIA, a facility with a CLIA certificate of waiver 
can only perform those tests that are approved by the FDA as waived 
tests. We update the list of waived tests and their appropriate CPT 
codes on a quarterly basis through our program transmittal process. 
When we program the claims system to look for the AMA CPT codes for 
Lipid Panel or any of the three tests which make up the panel, the 
system will recognize those waived tests performed using the same code 
plus the QW modifier that are medically necessary.
    Comment: Two commenters requested clarification of the frequency 
limits for the three tests considered for this benefit. They asked if 
we would cover: (1) A lipid panel; (2) one or more component tests 
making up the lipid panel once every 5 years; or (3) each of the 4 
HCPCS codes listed every 5 years.
    Response: The intent of the benefit is to screen for CV disease. 
Since we believe most physicians would order the Lipid Panel as a 
single test, our intention was to cover the panel. We recognize that 
physicians may have different approaches to reaching their decision to 
treat, and therefore, we have to make available the possibility that 
physicians could order the individual tests which make up the panel. No 
matter how the physician(s) order the tests, our intention is to cover 
each of the 3 component tests (that is, a total cholesterol, a 
triglycerides test, and an HDL cholesterol) once every 5 years.
    Comment: Two commenters asked that we clarify the reasons for 
having V codes for screening tests added from the MMA rather than the 
past practice of developing G codes (unique HCPCS codes; temporary 
codes). This commenter believed that the change to V codes would cause 
confusion to the databases like the Physician/Supplier Procedure 
Summary Master File. This confusion would result in improperly filed 
provider claims and this would lead to a different and confusing method 
of processing claims.
    Response: The decision to use ICD-9-CM codes rather than continue 
to add G codes was made because we try to utilize existing coding 
structures where possible and create G codes if there is a specific 
programmatic need. The laboratory community has lobbied against the use 
of G codes for a few years. Also the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA) Standardization Requirements are 
working toward phasing out G codes, which are CMS only codes. The 
claims processing and editing systems are expected to be adjusted to 
manage this change.
    Comment: Five commenters questioned the reasons for establishing 
limits on the frequency of this benefit since this places great legal, 
administrative, and financial burden for providers to manage this type 
of information. One commenter suggested the use of a chit that 
beneficiaries would receive and redeem for testing so laboratories 
would not need to keep records.
    Response: The statute requires a frequency limit. Since 
laboratories may not have the complete medical history for individuals, 
including their history of CV screening tests, they are largely relying 
on the physician's order in establishing whether the test is medically 
necessary and covered by Medicare. However, relying on the physician's 
order does not provide the laboratory with proof that the CV screening 
test is medically necessary since the beneficiary may be treated by 
multiple physicians who may have ordered these tests independently 
within the 5 year coverage window. If the laboratory has sufficient 
doubt, the laboratory may issue an Advanced Beneficiary Notice (ABN) to 
the beneficiary indicating that Medicare may not cover the CV screening 
test. If the laboratory does not issue an ABN to

[[Page 66294]]

the beneficiary who has received more that one CV screening test during 
the previous five years, the laboratory may be financially liable for 
the cost of the test. Laboratories are not required to issue an ABN if 
the physician has already issued one.
    In addition, section 40.3.6.4(C) titled ``Frequency Limited Items 
and Services'' of Chapter 30 of Pub 100-4 of the ``Internet Only 
Manual'' provides additional guidance for those instances where 
Medicare has imposed frequency limitations on items or services. This 
section instructs providers that the provider may routinely give ABNs 
to beneficiaries and that whenever such a routine ABN is provided to a 
beneficiary, the ABN must include the frequency limitation as the 
reason for which Medicare will deny coverage.
    Comment: Several commenters, including the ACR and the SIR, offered 
their assistance to us when we determine whether noninvasive testing 
for CV disease is necessary.
    Response: Since the organizations that suggested noninvasive tests 
for inclusion in this benefit provided the materials for our review, it 
is not necessary for us to seek outside assistance. We appreciate the 
commenters' offer of assistance.
    Comment: Four commenters suggested that the CV screening benefit 
stipulate an age for the population to be tested. We reviewed the 
USPSTF recommendation that promoted testing for men 35 years and older 
and women 45 years and older. The commenters believe this age range 
should be lowered to include those aged 20 years and older and asked us 
to consider including younger people in this benefit.
    Response: The statutory change for this benefit did not include an 
age for the person to be tested. While some of the USPSTF 
recommendations included an age or an age range, none was selected for 
the proposed rule. Since the majority of the individuals in Medicare 
are generally 65 and older, the belief was that we are looking at an 
older population rather than concentrating our resources on the younger 
beneficiaries who may also be disabled and Medicaid eligible or could 
be eligible for other services due to other complications of CV 
disease. While there may be individuals younger than 65 years of age 
that could benefit from this testing, this benefit is intended for 
those entitled to Medicare. Therefore, any patient entitled to Medicare 
would be covered for this benefit as specified in this rule.
    Comment: One commenter noted that if the patient did not fast for 
the screening test (fasting may be difficult for some patients), the 
calculation of LDL cholesterol may be inaccurate. This commenter 
recommended that for screening purposes, an alternative to repeating 
the full lipoprotein profile in the fasting state would be a follow-up 
direct measurement of LDL cholesterol.
    Response: If a patient cannot fast and the physician believes the 
patient's medical history and circumstances suggest the beneficiary is 
at risk of CV disease, then any additional testing beyond an initial 
screening would need to be done under the diagnostic clinical 
laboratory benefit. Under the screening benefit, a repeated full 
lipoprotein profile (fasting) or a second LDL cholesterol (fasting) 
would not be covered for anyone who failed to fast when they had their 
first set of tests.
    Comment: Several commenters suggested that the tests that the 
USPSTF approves for CV screening blood tests be automatically adopted 
and covered by Medicare for the purposes of this benefit. We would not 
need to use the NCD process to add tests to this benefit. Immediate 
adoption of USPSTF recommendations will remove us from our own lengthy 
review.
    Response: While the USPSTF process is well established, we believe 
it is prudent to review any recommendations from the USPSTF before 
implementing them. In the proposed rule, we asked the public how we 
should make changes for this benefit. Because the national coverage 
determination process allows for public comment before we make any 
changes, we believe this is the most appropriate basis for any future 
changes. Further, we may not be able to accept every USPSTF 
recommendation because of instructional, coding or claims issues that 
must be resolved before any benefit can be implemented.
    Comment: Several commenters questioned whether the screening 
benefit for CV disease included noninvasive tests or whether it was 
limited only to blood tests. Further, they recommended that the 
adoption of noninvasive tests be tied to recommendations of the USPSTF 
or to an NCD.
    Response: We interpreted this portion of the screening benefit to 
permit noninvasive tests for which there was a blood test recommended 
by the USPSTF (for example, there is a blood test for cholesterol and 
if a noninvasive test was developed that detected characteristics of 
cholesterol, could provide a meaningful (comparison) result and 
accurate reading) then the noninvasive test could be considered for 
inclusion in the screening benefit. Noninvasive tests would not be 
immediately included but would be subject to a review before adoption. 
When it is time to consider the addition of tests or changes to the 
list of tests, we will consider any changes through an NCD. This 
benefit is not limited only to blood tests.
    Comment: One commenter recommended that we include a fasting blood 
glucose test as part of the CV screening blood benefit and that we 
cover this test every 2 years for beneficiaries over 45 and for younger 
beneficiaries who are obese or have a family history of diabetes. 
Fasting blood glucose is inherently a CV screening test because 
diabetes carries increased risk of CV disease.
    Response: While some people who have diabetes exhibit other factors 
associated with CV disease, we do not see the necessity to adjust the 
CV screening benefit to include a fasting blood glucose test. The 
diabetes screening benefit should be able to identify these 
individuals. Medicare does not plan to duplicate tests when they are 
available through other screening programs.
    Comment: One commenter requested the inclusion of V70.0 for routine 
examination to be added as one of the ICD-9-CM codes to be covered for 
screening for CV screening blood tests. They asked that the NCD on 
lipid panel be reviewed for any codes that were previously denied as 
routine screening in the past, and that these codes be considered for 
inclusion under this new benefit.
    Response: We believe the majority of individuals who will seek care 
under this benefit will fit the V81.0, V81.1, or V 81.2 codes. We are 
willing to review a sample of claims and determine if V70.0 is an 
appropriate code for this benefit. At this time, we are unable to add 
V70.0 to the instructions being cleared. Codes that are to be 
considered for this new benefit must be brought to our attention 
through the national coverage determination process for laboratories.
    Comment: One commenter suggested that the proposed Sec.  410.17 
include reference to whether beneficiaries will incur out-of-pocket 
costs for CV screening blood tests.
    Response: Section Sec.  410.17 is specific to coverage instructions 
for screening tests for the early detection of CV disease. We do not 
believe it is necessary to revise Sec.  410.17 to include payment 
instructions. We have indicated that Medicare would pay for the tests 
under the clinical laboratory fee schedule. Currently under this 
payment system, beneficiaries do not incur copayments and deductibles 
in accordance with section 1833(a)(1)(D)(i) of the Act, and is included 
in

[[Page 66295]]

instructions at Medicare Claims Processing Manual, Pub. 100-04, chapter 
16, Sec.  30.2.
    Comment: Two commenters asked us to clarify why we chose 5 years as 
the timeframe for the benefit, rather than the 2 years allowed by the 
statute.
    Response: Our primary goal was to allow testing for the population 
that needed to be screened. In the preamble to the proposed rule, we 
stipulated that the Clinical Considerations of the USPSTF indicate, 
while screening may be appropriate in older people, repeated screening 
is less important because lipid levels are less likely to increase 
after age 65. Screening individuals more often than necessary might 
lead to unnecessary expenses and treatment. The scientific literature 
indicates that lipid levels in the elderly are fairly stable. 
Therefore, we proposed screening once every 5 years and have not 
received sufficient evidence to change this position.
    Comment: Two commenters suggested that a two-tiered benefit be 
developed that would allow lipid profile screening tests at least every 
5 years for beneficiaries when risk factors are not evident and a 
second group be screened at least every 2 years. The second group would 
include individuals who have modifiable risk factors (for example, 
tobacco smoking, high blood pressure, physical inactivity, obesity, and 
diabetes mellitus) and non-modifiable risk factors (such as age, 
gender, race, and family history).
    Response: While the CV screening benefit could be expanded to 
include individuals other than those mentioned in the proposed rule, 
preventive benefits were added to the Medicare Program on a limited 
basis as science and technology permit them. Since some of the 
individuals in the second group already would be screened through the 
IPPE and the Diabetes Screening Benefit, we are not developing a second 
tier at this time. We believe expanding this to a second tier would 
waste precious resources of time and money and not contribute to 
lowering the risk factors for individuals with CV disease.
    Comment: One commenter questioned why we proposed to use the NCD 
process as the method of making changes to the list of tests covered by 
the CV screening blood test benefit. The commenter wrote that the MMA 
does not require that the NCD process be utilized. They indicated that 
there is no need for us to conduct our own assessment since a thorough 
evaluation of the test was to be done by the USPSTF in determining that 
the test is one that it recommends. The commenter objected to the use 
of the NCD process for consideration of new tests because of the 
significant delays that mark this process. The commenter also stated 
that all that would be needed for us to approve the coverage of 
additional CV screening tests is the recommendation of the USPSTF.
    Response: In establishing the benefit for CV screening blood tests, 
the Congress gave the Secretary the authority to determine which tests 
would be covered by this benefit. We do not believe it would be proper 
to delegate this function to USPSTF or any other entity. In the 
proposed rule, we proposed the tests to be covered for the new benefit 
when it becomes effective January 1, 2005 and at the same time, we 
offered the NCD process for changes to this benefit. We proposed that 
future tests would be added after reviewing the recommendations of the 
USPSTF and the use of the NCD process. The NCD process actually has 
several methods for evaluating which tests we may eventually cover. The 
NCD process includes an application for a new coverage issue, a 
reconsideration of an existing policy, or a coding change for 
laboratory tests. We believe the use of the NCD process is a worthwhile 
endeavor since it is a public process and less time consuming than 
rulemaking. The use of an NCD is authorized by Section 1871 of the Act.
    Comment: One commenter suggested that we include triglycerides as a 
test for the CV screening blood test benefit since the 2001 USPSTF 
recommendations for screening for lipid disorders associated with CV 
disease only includes measurement of total cholesterol and high-density 
lipoprotein cholesterol (HDL-C).
    Response: We have included the triglycerides test as one of the 
tests for screening for CV disease. For some individuals, triglycerides 
may detect a risk factor for CV disease. That is why it was more 
prudent to select a lipid profile that includes the three tests (total 
cholesterol, HDL-C, and the triglycerides) rather than to indicate the 
use of individual tests with different test intervals and different 
ordering patterns.
    Comment: One commenter requested that the frequency limit for lipid 
testing of 5 years be waived if the patient develops a risk factor, 
such as diabetes, a marked weight gain, etc. in the interval.
    Response: A patient screened for lipid testing could also meet the 
requirements for screening under the diabetes screening benefit. If a 
patient developed further risk factors which negate the need for 
continued screening under the CV screening blood test benefit, their 
additional signs or symptoms would probably cause the person to need to 
seek treatment which would be covered under other benefits including 
diagnostic clinical laboratory testing.
    Comment: One commenter questioned whether Sec.  410.16 that permits 
qualified nurse practitioners and others to order CV screening tests 
under the physical examination (section 611 of the MMA) is inconsistent 
with Sec.  410.17 that requires that the laboratory tests be ordered by 
the treating physician (Sec.  410.32(a)).
    Response: Section 410.16 addresses services by NPs because of 
conforming changes made in section 611(d) of the MMA. Section 
410.32(a)(3) permits certain NPPs to furnish services that would be 
physicians' services if furnished by a physician and who are operating 
within the scope of their authority under State law and within the 
scope of their Medicare statutory benefit. We believe that the statute 
permits the use of NPPs to order tests described under Sec.  410.17 
without a change in the statute. The general rule for laboratory tests 
is that the tests must be ordered by the treating physician and in the 
instance of screening tests, the treating NPP may be regarded as a 
physician for this purpose.
    Comment: One commenter believed that screening every 5 years was 
too long a period between tests and that the data we collect be used to 
allow more frequent testing.
    Response: We have heard from commenters that the frequency 
limitation of keeping records for the 5 years is difficult because of 
storage, access and retrieval, and orders from multiple physicians. 
Change in the frequency (that is, the number of times a patient can be 
tested during a given timeframe) will be considered if the scientific 
literature supports it. We do not believe we are permitted to change 
the frequency based solely upon the logistical difficulties in 
collecting, consolidating, and maintaining administrative data. 
Modifying the benefit to permit more frequent testing will not resolve 
these administrative difficulties. However, we will take this 
recommendation under advisement as we continue to consider the 
associated clinical data, but will not make any changes for the final 
rule.
    Comment: One commenter requested that blood be removed from the 
title of this benefit for the final rule. The commenter believed the 
narrow focus on blood would restrict the types of tests that would be 
administered for detecting CV disease.
    Response: In developing the proposed rule, we included blood in the 
title of this benefit to be consistent with the

[[Page 66296]]

history of this benefit and to distinguish the tests in the benefit. We 
believe that noninvasive tests could be covered and this benefit is not 
limited only to blood tests.
    Comment: One commenter suggested that the CV screening benefit 
include an appropriate screening instrument. As with depression, the 
examining physician has a test based on clinical practice guidelines to 
use as a tool for assessing the patient. Since the American Heart 
Association (AHA) and the ACC Guidelines for PAD are expected to be 
published in 2005, the commenter is requesting that we adapt the 
patient assessment and include these guidelines under the CV screening 
benefit.
    Response: Since the publication of the AHA and ACC Guidelines has 
not taken place, it would be difficult to evaluate this document and 
how physicians would use this in the course of examining a patient. 
Physicians may use their best judgment for how they assess an 
individual patient and whether additional specific tests from the AHA 
and ACC guidelines would be more helpful than what is already included 
in the screening benefit for CV disease is not something we can 
conclude at this time. The NCD process is available when additional 
tests should be considered.

Result of Evaluation of Comments

    After reviewing all the comments, we have plans to include the V 
codes (V81.0, V81.1 and V81.2) in the Laboratory Edit Module, and to 
release manual and transmittal instructions and information to smooth 
the transition for the new benefit. Providers who routinely give ABNs 
to beneficiaries must include in the ABN that the frequency limitation 
is the reason for which Medicare will deny coverage. A patient who has 
an ABN and exceeds the frequency limitation may incur out-of-pocket 
charges. We will finalize the changes to Sec.  410.17 as proposed.

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 ``HPSA Zip Code Areas'' at the beginning of your comments.]
    Section 413(a) of the MMA provides a new 5 percent incentive 
payment to physicians furnishing services in physician scarcity areas 
(PSAs). The MMA added a new section 1833(u) of the Act that 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.
    Section 1833(u) of the Act defines the two measures of physician 
scarcity as follows:
    1. Primary care scarcity areas--determined by the ratio of primary 
care physicians to Medicare beneficiaries. A primary care physician is 
a general practitioner, family practice practitioner, general 
internist, obstetrician, or gynecologist.
    2. Specialist care scarcity areas--determined by the ratio of 
specialty care physicians to Medicare beneficiaries. The specialist 
care PSA ratio includes all physicians other than primary care 
physicians as defined in the definition of primary care scarcity areas.
    To identify eligible primary care and specialist care scarcity 
areas, we ranked each county by its ratio of physicians to Medicare 
beneficiaries. In accordance with the statute, in the list of primary 
care and 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 were considered 
eligible for the 5 percent incentive payment. In accordance with the 
section 1833(u) of the Act, we also treated a rural census tract of a 
metropolitan statistical area (as determined under the most recent 
modification of the Goldsmith Modification) as an equivalent area (that 
is, equal to a full county).
    Consistent with section 1833(u)(4)(C) of the Act, all PSAs were 
assigned their 5-digit zip code area so that we may automatically 
provide the 5 percent incentive payment to eligible physicians. For zip 
codes that cross county boundaries, we used the dominant county of the 
postal zip code (as determined by the U.S. Postal Service) to identify 
areas eligible to receive the 5 percent payment. Section 1833(u)(4)(C) 
of the Act 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 
our Web site. See Addenda J and H for the zip codes of primary care and 
specialist care PSAs. The PSA lists by zip code and county are also 
available on our Web site at http://www.cms.hhs.gov/providers/bonuspayment.
 Since we are publishing these lists for the first time in 

this final rule with comment period, we are accepting comments for 60 
days after the date of publication of this regulation on the zip codes 
and counties qualifying as physician scarcity areas and will address 
the comments in next year's fee schedule.
    In addition to creating of the 5 percent PSA incentive payment, 
section 413 of the MMA amended section 1833(m) of the Act to mandate 
that we pay the 10 percent health professional shortage areas (HPSA) 
incentive payment to eligible physicians in full county HPSAs without 
any requirement that the physician identify the HPSA area. We can only 
achieve this result by assigning zip codes to eligible areas. See 
Addenda I and K for the lists of eligible primary care and mental 
health HPSAs by zip code. Consistent with the Act, we have also posted 
a list of links on our Web site at http://www.cms.hhs.gov/providers/bonuspayment
 to assist those physicians located in eligible areas where 

automation is not feasible, that is, the eligible area could not be 
assigned a zip code.
    In the August 5, 2004 proposed rule, we proposed conforming changes 
to our regulations to add Sec.  414.66 to provide a 5 percent incentive 
payment to eligible physicians furnishing covered services in eligible 
PSAs. We also proposed conforming changes to our regulations to add 
Sec.  414.67 to codify the 10 percent incentive payment to eligible 
physicians furnishing covered services in eligible HPSAs, established 
under the Omnibus Budget Reconciliation Act of 1987 (OBRA) (Pub. L. 
100-203), previously implemented through manual issuance.
    We received 23 letter comments on the bonus payment provisions of 
section 413 of the MMA. A summary of those comments and our responses 
follows:
    Comment: One commenter questioned the rationale behind using zip 
codes for the purpose of identifying eligible areas for physician 
bonuses. The commenter believes that zip codes are less accurate than 
political boundaries (counties, census civil divisions, and census 
tracts).
    Response: The statute requires the identification of PSAs on a 
county basis, except for rural areas (using the Goldsmith 
Modification). At this time, we can only determine physician scarcity 
for Goldsmith areas at the zip code level since the Medicare 
beneficiary data is currently unavailable at the census tract level.
    Automation of physician bonus payments can only be achieved by 
assigning zip codes to eligible areas. That is, the zip code place of 
service is the only data element reported on the Medicare claim form 
that would allow automation.
    Comment: A commenter believes that our proposal to identify 
qualified PSAs and HPSAs by zip code for automatic payment purposes is 
problematic

[[Page 66297]]

because zip codes cross county lines. The commenter suggested that a 
more user-friendly option would be to add a county identifier to the 
claim form.
    Response: The addition of a county code would not resolve the issue 
of identifying the claims that would have a bonus because not all 
designated HPSAs and PSAs are full counties. We cannot identify, for an 
automated payment, services furnished in counties that are only 
partially designated and Goldsmith areas that are not full counties. In 
addition, there currently is no place on the standard electronic claims 
form to accommodate the entry of a county code.
    Comment: A commenter requested clarification regarding 
circumstances when automation of bonus payments is not feasible.
    Response: When the boundaries of zip code areas precisely overlay 
with the boundaries of eligible HPSAs and PSAs, automation of bonus 
payments is feasible. In other words, eligible physicians furnishing 
services to Medicare patients within these zip code areas will 
automatically receive their bonus payments. We can also automate bonus 
payments within zip code areas that cross outside of qualified county 
boundaries as long as the zip code, as determined by the U.S. Postal 
Service, is dominant to the qualified scarcity county. We cannot 
automate bonus payments when boundaries of zip code areas only 
partially coincide with the boundaries of HPSAs and PSAs.
    Comment: One commenter requested clarification regarding the 
application of the billing modifier in determining physician 
eligibility. The commenter inferred from the proposed rule that, if the 
zip code is not posted as a qualified area, an eligible physician could 
still receive a bonus payment if a modifier is used.
    Response: Eligible physicians furnishing covered services in a 
portion of an eligible PSA, which cannot be properly assigned a zip 
code to permit automation of the bonus payment, would need to include 
the new physician scarcity modifier on the Medicare claim in order to 
receive the bonus payment. Lists of the zip codes that are eligible for 
the automated payment, as well as a list of the counties that are 
eligible to receive the PSA bonus are available on our Web site at 
http://www.cms.hhs.gov/providers/bonuspayment. If a service is provided 

in a zip code area that is not listed on the automated payment files, 
but is within a designated physician scarcity county, the physician 
must submit the ``AR'' billing modifier with the service in order to 
receive the bonus payment. Separate lists for the primary care PSAs and 
the specialty care PSAs are provided on our Web site for both the 
automated zip codes and the counties.
    Comment: A commenter requested clarification on what ratios would 
be used to identify PSAs. The Health Resources and Services 
Administration (HRSA) uses a national ratio of 3,500:1, or 3,000:1 if 
high needs are shown. The commenter requested information on which 
ratios would be used to determine PSAs for specialty providers, and 
whether the ratios would be different for different specialty care 
providers.
    Response: 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. In other words, we ranked each county by its ratio 
of physicians to beneficiaries and then designated counties as scarcity 
areas with the lowest ratios until 20 percent of the Medicare 
population was reached. A separate specialist physician ratio was 
calculated to identify specialist care PSAs using the same methods 
stated. The statutory mandate precludes us from adopting a national 
physician-to-patient ratio similar to the HPSA designations. By 
statute, the 20 percent population threshold must serve as the 
qualifying condition for all counties/rural areas.
    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. In accordance with the statute, all other physicians were 
grouped together as specialists for purposes of determining the 
specialist care PSA list.
    Comment: A commenter requested clarification regarding the 
frequency of updating the eligible zip code list for automatic HPSA 
bonus payments and its impact on otherwise eligible physicians.
    Response: Determination of zip codes eligible for automatic HPSA 
bonus payment will be made on an annual basis, and there will not be 
any mid-year updates. We will effectuate revisions made to designations 
by HRSA the following year for purposes of automatic bonus payments. 
Consequently, if HRSA changes to the HPSA designations remove 
physicians in those areas from receiving automatic payment, the zip 
code areas will remain eligible until the next year when we remove the 
zip code from our approved list.
    Eligible physicians furnishing covered services in newly-designated 
HPSAs are permitted to add a modifier to their Medicare claims to 
collect the HPSA incentive payment until our next annual posting of 
eligible zip codes for automation of bonus payments. In cases where a 
zip code cannot be properly assigned to the newly-qualified HPSA, 
physicians furnishing services in the area must continue to bill for 
the incentive payments using the appropriate modifier.
    Comment: A commenter requested that we provide FQHCs with the 5 
percent PSA incentive payment. Since the statute does not explicitly 
exclude other physicians' services (that are billed on an all-inclusive 
basis), such as those provided in FQHCs or RHCs, the commenter stated 
that we should extend the new 5 percent bonus payment to FQHC 
physicians.
    Response: As defined in section 1861(aa) of the Act, FQHC and RHC 
services are not physicians' services, even though physicians' services 
are frequently a component of the services furnished in these 
facilities. The services are rather identified as FQHC services. 
Therefore, services furnished by these providers are not eligible for 
the incentive payment.
    Comment: A commenter has questioned our proposal not to apply the 
new 5 percent physician incentive payment to the technical component of 
physicians' services. The commenter stated that extending the new bonus 
payment to both the professional and technical component of the 
physicians' services is consistent with Congressional intent and would 
simplify claims processing.
    Response: Section 1833(u) of the Act provides for incentive 
payments for physicians' services furnished in PSAs. We note that the 
statute contains two definitions of physicians' services. The first, 
which appears at section 1861(q) of the Act, defines physicians' 
services as ``professional services performed by physicians including 
surgery, consultation, and home, office, and institutional calls.'' The 
second, which refers to services paid under the physician fee schedule, 
is found at section 1848(j)(3) of the Act and contains a broader 
definition of physician services. However, that definition applies only 
for purposes of section 1848 of the Act.
    Since the incentive payment is not included in section 1848 of the 
Act, the definition of physicians' services specified in section 
1861(q) of the Act is the definition that applies. Thus, we believe the 
best reading of the statute is that only professional services 
furnished

[[Page 66298]]

by physicians are eligible for incentive payments.
    Comment: A commenter recommended that we extend the HPSA bonus 
payment to all physicians, regardless of their specialty, when their 
services are furnished within a mental health HPSA. The commenter 
believes there is no statutory basis to limit incentive payments just 
to psychiatrists within mental health HPSAs.
    Response: We provide HPSA bonus payments in primary medical care 
HPSAs to all physicians regardless of specialty (including 
psychiatrists) in light of the fact that there is significant overlap 
between primary medical care HPSAs and mental health HPSAs. 
Furthermore, most primary medical HPSAs, especially in rural areas, 
also have shortages of specialists. Consequently, there is no apparent 
need to distinguish between physician specialties within primary 
medical care HPSAs for determining physician eligibility for bonus 
payment purposes. However, in the situation where the mental health 
HPSA does not overlap with a primary medical care HPSA, we allow only 
psychiatrists to collect the incentive payment. Within these stand-
alone mental health HPSAs, there is an adequate supply of physicians 
for the provision of medical services and a shortage only of those 
providing mental health services. Therefore, it would be inconsistent 
with the HPSA incentive payment provisions, as well as an inappropriate 
use of the Medicare Trust Fund, to pay bonuses to physicians who 
furnish medical services in service areas without shortages of primary 
medical services.
    Comment: A commenter requested that we count only those practicing 
physicians who treat Medicare patients when determining the ratio of 
beneficiaries to practicing physicians. To count all practicing 
physicians, including those who do not treat Medicare patients would 
undermine the intent of the provision.
    Response: The statute does not permit us to count only Medicare 
participating physicians to determine PSAs. The statute explicitly 
requires that we calculate the primary and specialist care ratio by the 
number of physicians in the active practice of medicine or osteopathy 
within the county or rural area. Therefore, we must include in the 
physician tally all actively practicing physicians when determining 
PSAs.
    Comment: A commenter asked that we clarify our methods for 
determining the number of primary care and specialty care physicians to 
calculate the physician-to-beneficiary ratio for identifying PSAs. The 
commenter suggested that we use only the number of practicing 
physicians when determining the beneficiary to physician ratio, that 
is, distinguish between licensed physicians and practicing physicians 
when determining ratios of primary care and specialty care since some 
physicians continue to be licensed after they retire.
    Response: As required by section 413 of the MMA, the determination 
of eligible PSAs is based on the ratio of ``active practice'' 
physicians to Medicare beneficiaries within a county or rural area 
(using the Goldsmith Modification). The physician data source used in 
calculating scarcity areas is contained in the following:
     The 2001 Physician Characteristics file; and
     The 2001 Physician Address file.
    These data are a compilation of:
     The December 2001 AMA Master file;
     The December 2001 American Osteopathic Association (AOA) 
Physician file; and
     The National Health Service Corps 2001 participant 
listing.
    These physician data files allow for the identification of the 
physician's active status. Some of the key status indicators to 
identify practicing physicians include ``clinically active'' and 
``Federal employment'' status. Clinically active status was determined 
using the type of practice, professional employment, and major 
professional activity fields from AMA and AOA. For example, determining 
non-active status is based on physicians who--
    (1) Are involved in administration, medical teaching, research, and 
other non-patient care activities; or
    (2) Have self-identified as fully retired or otherwise inactive.
    We believe that the indicator field of ``fully retired or otherwise 
inactive'' addresses the specific issue of a physician maintaining his 
or her license after he or she retires.
    Comment: A commenter expressed concern about our use of the AMA 
database to determine the number of licensed physicians engaged in 
direct patient care in each State. The commenter claims that the AMA 
database overstates the number of practicing physicians in the State of 
California by at least 10,000 physicians. In light of this concern, the 
commenter stated that we should use State medical board licensing 
information rather than the AMA database in determining the physician 
counts.
    Response: The physician data source used in calculating scarcity 
areas is contained in the 2001 Physician Characteristics file and the 
2001 Physician Address file. These data are a compilation of the 
December 2001 AMA Master file, the December 2001 AOA Physician file, 
and the National Health Service Corps 2001 participant listing. We made 
the decision to use the AMA Master file as well as the other files as 
the sources of physician data in scarcity calculations because there is 
no other adequate source of national physician data. It may be possible 
to obtain physician data from each individual State agency, but doing 
so would entail considerable administrative and technical difficulties. 
Furthermore, methods of gathering and compiling data may be 
inconsistent in different States. State agencies may vary greatly in 
terms of the methods used to update physician databases, the frequency 
of updates, how the data are stored, the type of information collected, 
and so forth. In addition, States may use their own classification 
systems for physician specialties, types of practice, and other key 
information, and these systems may change over time.
    Comment: A commenter encouraged us to implement similar incentive 
payment programs for non-physician practitioners, for example, 
Certified Registered Nurse Anesthetists and physician assistants.
    Response: We do not have the authority to provide bonus payments to 
non-physicians. Sections 1833(m) and 1833(u) of the Act authorize bonus 
payments only to physicians.
    Comment: A commenter requested that we immediately publish the 
already identified PSAs by zip code and specify the specialties in 
short demand within each eligible PSA.
    Response: Lists of the zip codes that are eligible for the 
automated payment, as well as a list of the counties that are eligible 
to receive the PSA bonus, are now available on our Web site at http://www.cms.hhs.gov/providers/bonuspayment.
 See Addenda J and H for the zip 

code list of PSAs for primary care and specialist care.
    We have forwarded to the Health Resources and Services 
Administration the request for identification of specialties in short 
supply within PSAs. That Agency has responsibility for physician 
manpower issues.
    Comment: A commenter requested that the list of scarcity areas 
should be made interim in the final fee schedule rule in order to give 
physicians sufficient time to review and comment on the proposal.
    Response: Although we made these lists public on our Web site on 
October 1, 2004, we will accept comments for 60 days after the date of 
publication of this regulation on the zip codes and counties

[[Page 66299]]

qualifying as physician scarcity areas and will address the comments in 
next year's fee schedule.
    Comment: A commenter expressed appreciation for our effort to 
fairly implement the incentive payments to physicians in scarcity 
areas. As this new incentive payment program is implemented, physicians 
must be informed that this bonus is available, and it must be simple 
for them to receive the bonus.
    Response: We have already made available on our Web site at http://www.cms.hhs.gov/providers/bonuspayment
 the lists of the zip codes that 

are eligible for the automated payment, as well as a list of the 
counties that are eligible to receive the PSA bonus. We have also 
issued a Medlearn article to educate the physician community regarding 
Medicare physician incentive payment programs. For a copy of this 
provider education article go to: http://www.cms.hhs.gov/medlearn/matters/mmarticles/2005/SE0449.pd.
 Lastly, Medicare's contractors have 

established their own Web site links for the HPSA incentive payment 
program to facilitate the payment of these bonuses to eligible 
physicians.
    Comment: A commenter expressed support of our proposed changes 
relating to incentive payments for services provided in areas 
designated as HPSAs and PSAs. The commenter also commended us for our 
prompt implementation of section 413 of the MMA. Another commenter 
expressed appreciation that the new 5 percent incentive is available to 
specialists in counties with short supply of these physicians.
    Response: We appreciate this positive feedback from the provider 
community.
    Comment: A commenter has questioned the rationale for our policy of 
imposing, as a condition of eligibility, the requirement that the 
specific location at which the service is furnished must be considered 
a HPSA or PSA. Since physicians do not always reside in the county 
where they provide services, identifying PSAs on one basis and paying 
for them on another basis may be problematic.
    Response: According to section 1833 of the Act, we make bonus 
payments for physicians' services furnished in an eligible HPSA or PSA. 
Thus, the place of service controls the availability of the bonus. A 
physician providing a service in his or her office, a patient's home, 
or in a hospital may receive the incentive payment only if the service 
occurs within an eligible shortage or scarcity area.
    Comment: One commenter believes that podiatric physicians, who are 
considered specialists, should be among those eligible to receive the 
additional 5 percent incentive payment.
    Response: 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. Therefore, we do not have authority to make 
bonus payments to podiatrists.
    Commenter: A commenter expressed concern that our systems had 
trouble implementing the HPSA bonuses under Method II for Critical 
Access Hospital (CAH) participation, and some providers have waited 
more than two years for increased Medicare payments.
    Response: Although some fiscal intermediaries may not have been 
accustomed to processing physician claims, these systems were updated 
and the problems resolved as of July 1, 2004.
    Comment: A commenter from California requested that physicians who 
provide Medicare services only through managed care not be included in 
our calculations. The commenter believes that including physicians who 
only treat managed care patients in the count to determine physician 
scarcity areas will lead to a gross overstatement of the number of 
physicians available to provide care to fee-for-service Medicare 
patients.
    Response: We do not believe that we have the legal authority to 
exclude managed care physicians from the ratio calculations. Moreover, 
excluding managed care physicians in the county-wide physician tally 
would not change PSAs in California based on our calculations. In fact, 
excluding the managed care physicians would make five eligible areas 
ineligible.

Result of Evaluation of Comments

    We are finalizing Sec.  414.66 and Sec.  414.67 as proposed. We are 
accepting public comments on the zip code areas.

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

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, which 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. Payment amounts will be updated quarterly 
based on the manufacturer's ASP calculated for the most recent calendar 
quarter for which data are available. We intend to implement the 
quarterly pricing changes through program instructions or otherwise, as 
permitted under Section 1847A(c)(5)(C). 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.
    The methodology for developing Medicare drug payment allowances 
based on the manufacturer's submitted ASP data is described in this 
final rule and reflected in final revisions to the regulations at Sec.  
405.517 and new Subpart K in part 414. Several comments discussed 
aspects of the manufacturers' calculation of ASP that are beyond the 
scope of this final rule. We did not propose any changes to the 
regulations concerning the manufacturer's calculation of ASP. We also 
received other comments regarding the use of the least costly 
alternative (LCA) methodology when pricing drugs, and requests for new 
HCPCS codes for drugs and coverage of compounded drugs. These comments 
are also outside the scope of this final rule. We did not propose any 
changes to the LCA policy, the HCPCS process, or coverage of compounded 
drugs.

b. Provisions of the Final Rule

i. The ASP Methodology
    Effective 2005, payment for certain drugs and biologicals not paid 
on a cost or prospective payment basis furnished on or after January 1, 
2005 will be based on an ASP methodology.
    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

[[Page 66300]]

drug products included within the same billing and payment code [or 
HCPCS code] is the volume-weighted average of the manufacturers' 
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.
    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.
    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.
    Comment: One commenter suggested that we implement the ASP 
methodology on a pilot basis prior to a national rollout. A physician 
interest group recommended that we delay the implementation of the ASP 
payment system for at least one year. The interest group stated that we 
should inform physicians of the ASP for all covered drugs before the 
final rule is issued and allow physicians to comment on the proposed 
rates after an informed and complete review process.
    Response: The law requires that the new ASP-based drug pricing 
system be implemented January 1, 2005. The January 1, 2005 prices will 
be based on the data submitted to us no later than 30 days after the 
end of the third calendar year quarter of 2004. Given the requirements 
surrounding the timing of the promulgation of the physician fee 
schedule final rule, we will not have the January 1, 2005 prices 
available before the publication of the final rule. However, our goal 
is to provide as much information on Medicare Part B drug payment rates 
as possible as early as possible prior to the January 1, 2005 effective 
date of those rates.
    Comment: A provider asked that we earmark funds to enable 
physicians to transition from the AWP-15 percent payment system to the 
ASP + 6 percent payment system.
    Response: We do not have statutory authority to create such a 
transition fund.
    Comment: One commenter stated that the ASP plan does not account 
for price increases in a timely manner. Another commenter expressed 
concern that because ASP modifications lag by at least two calendar 
quarters, market prices would not be reflected in a drug's payment 
limit for at least six months after a pricing adjustment.
    Response: The ASP methodology is based on average sales prices 
reported by manufacturers quarterly. Manufacturers must report to us no 
later than 30 days after the close of the quarter. We implement these 
new prices through program instructions or otherwise at the first 
opportunity after we receive the data, which is the calendar quarter 
after receipt.
    Comment: Some commenters expressed concern that the ASP + 6 percent 
payment methodology would discourage providers from using generic drugs 
and would increase the tendency to use newer or more expensive agents.
    Response: It is true that the higher the average sales price of a 
drug, the greater amount of money represented by 6 percent of that 
price. However, Section 1847A specifies that payment is at 106 percent 
of ASP. The law requires the use of the new ASP + 6 percent payment 
system except in the limited instances described below in Sections V 
and VI.
    Comment: Several commenters suggested that we should establish a 
mechanism to provide the public with an opportunity to identify errors 
in the ASP-based payment rates before the start of the calendar quarter 
in which the rates are effective. They believe that this mechanism 
would minimize errors by permitting posting of the rates several weeks 
prior to the effective date.
    Response: Our goal is to provide as much information on Medicare 
Part B drug payment rates as possible as early as possible prior to the 
effective date of those rates.
    Comment: A physician specialty group recommended that we use our 
inherent reasonableness authority to increase drug payments up to 15 
percent where necessary to make the Medicare payment level sufficient 
to cover the price of drugs charged by specialty distributors that 
service the physician office market.
    Response: We do not have sufficient data to determine whether our 
inherent reasonableness authority would apply in this instance. Even if 
our inherent reasonableness authority were triggered, our data are 
insufficient to determine whether the adjustment the commenters request 
would be appropriate.
    Comment: Several commenters urged us to weigh the full range of 
potential consequences to patient care, especially in the oncology 
setting, with the implementation of the ASP payment methodology. They 
recommended that we take into consideration concerns such as the 
potential inability of providers to purchase drugs below the new 
reimbursement rate, the inability of oncologists to provide access to 
important under-reimbursed support services, and the disproportionate 
impact of these changes on rural providers necessitating a shift in 
care of sick cancer patient from community settings to the hospital. 
Some commenters suggested that we place a form on its Web site enabling 
beneficiaries to identify access problems. One commenter suggested that 
we perform a 1-year monitoring study to evaluate the quality of care 
issues and delay implementation until the results of the study are 
known.
    Response: Although we do not expect access problems under the new 
ASP + 6 percent payment system, we will be monitoring patient access 
through our 1-800-MEDICARE line, regional office staff, claims 
analysis, and other environmental scanning activities. We will work 
with Congress if access issues arise. The law requires that the new 
ASP-based drug pricing system be implemented January 1, 2005.
    Comment: Several commenters expressed concern regarding the 
statements on joining group purchasing organizations (GPOs) to improve 
their purchasing power. They indicate that

[[Page 66301]]

the size of the discount is based on the individual GPO member's 
purchases, not the combined purchases of the GPO members. Thus, 
membership in a GPO would not necessarily result in a greater discount. 
They also point out that retail pharmacies do not have access to GPO 
purchasing arrangements. One commenter requested that we offer more 
tangible suggestions for obtaining drugs at the ASP +6 percent price 
other than encouraging physicians to participate in purchasing groups.
    Response: The law requires that the new ASP-based drug pricing 
system be implemented January 1, 2006. A recent survey of oncology 
practices performed by the American Society of Clinical Oncology 
indicated that the purchase price of drugs is not necessarily driven by 
practice size. It would appear that smaller purchasers are on average 
sometimes able to achieve similar drug pricing to larger purchasers. 
The OIG is conducting a study due not later than October 1, 2005, on 
the ability of different size physician practices in the specialties of 
hematology, hematology/oncology, and medical oncology to obtain drugs 
at 106 percent of the average sales price. We are currently conducting 
another MMA-mandated study of sales of drugs to large volume purchasers 
that is due not later than January 1, 2006. We will seek to work with 
physicians, providers, and suppliers on ways to encourage prudent 
purchasing, including to the extent practicable the dissemination of 
information on lower cost suppliers of Medicare Part B drugs. We would 
welcome suggestions on ways to accomplish this goal.
    Comment: One commenter suggested that classes of trade should be 
taken into account when establishing ASP payment rates.
    Response: The law does not permit the exclusion of or 
differentiation by classes of trade in the calculation of the ASP 
payment rates, except for the specific statutory exceptions described 
in the Medicaid best price calculation under sections 1927(c)(1)(C)(i) 
and 1927(c)(1)(C)(ii)(III) of the Act. The statute specifies a payment 
rate of 106 percent of ASP.
    Comment: A drug manufacturer urges us to reject any requests to 
publish the NDC-specific ASPs as the publishing of the rates would 
facilitate inappropriate conduct.
    Response: The law does not permit the disclosure of NDC level ASPs 
in a form that discloses the identity of a specific manufacturer or 
prices charged by the manufacturer except in accordance with Section 
1927(b)(3)(D) of the Act. That provision permits the disclosure of such 
data as the Secretary determines to be necessary to effectuate the 
provisions of section 1847A of the Act.
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.''
    Comment: One commenter urged us to provide further guidance on the 
widely available market price (WAMP) methodology, specifically how the 
OIG will compare ASP to WAMP. The commenter also requested guidance on 
how WAMP will be determined in the case of multiple drugs represented 
by a single J-code. Other commenters stated that we should provide 
greater guidance for how it will substitute WAMP for ASP. These 
commenters also suggested that we provide guidance on how it will treat 
quarterly oscillations between ASP and WAMP.
    Response: The OIG is developing its methodology regarding the 
widely available market price. Because the determination of WAMP is 
within OIG's purview, we believe it is premature to address the 
implementation issues prior to the OIG establishing its methodology and 
conducting its first review.
    Comment: Several commenters recommend that we make adjustments 
where there is a disparity between the ASP-based payment limit and the 
physician acquisition cost. These commenters recommended that we raise 
the payment rate if the WAMP is higher than ASP.
    Response: Section 1847A of the Act does not provide authority to 
increase the ASP-based payment system based on the review of the OIG.
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.''
    Comment: Several commenters requested that we provide guidance on 
how the payment rate for a new drug in its second calendar quarter will 
be determined. They recommend that we utilize the same methodology for 
the 2nd quarter payment as for the 1st quarter; that is, use the WAC or 
methodologies in effect on November 1, 2003.

[[Page 66302]]

    Response: Pursuant to section 1847A(c)(4) of the Act, during an 
initial period (not to exceed a full calendar quarter) where data on 
prices for sales for a drug are not sufficiently available from the 
manufacturer to compute an ASP, we will pay based on WAC or the 
methodologies in effect on November 1, 2003 for a limited period. This 
time period will start on the date that sales of the drug begin and end 
at the beginning of the quarter after we receive information from the 
manufacturer regarding ASP for the first full quarter of sales.

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. The AWP payment rates 
for these vaccines will be updated quarterly. No commenters objected.

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, we proposed that 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. We proposed to update this quarterly based 
on the ASP reported to us by drug manufacturers.
    We received numerous comments regarding our proposed payments rate 
of ASP minus 3 percent. Those comments and responses are provided 
below.
    Comment: Commenters questioned the basis for our decision to pay 
for separately reimbursed drugs at a rate of ASP minus three percent. 
These commenters stated that ASP minus 3 percent was not acquisition 
cost as determined by OIG and did not reflect the acquisition cost 
relationship between these drugs. Some commenters questioned the 
relationship between the ASP definition used by the OIG and the current 
definition. Commenters stated that we should base the payment rates on 
the acquisition cost of each drug as reported by the OIG updated to 
2005 rather than an ASP-based formula. Some commenters indicated that 
the acquisition cost should be updated to 2005 and suggested an update 
using the same annual factor used for budget neutrality calculations. 
For drugs not included in the OIG report, some commenters suggested 
that we use the same methodology for most other Medicare Part B drugs, 
namely ASP plus 6 percent. Commenters indicated we should consider two 
tiers of payment based on provider size to minimize the discrepancy 
between large and small providers or in the absence of two tiers base 
the payment on the acquisition cost of the facilities not owned or 
managed by the four largest providers. Commenters also asked for 
clarification of the payment basis for separately billable ESRD drugs 
other than EPO billed by hospital based ESRD facilities since these 
drugs historically were not paid based on AWP but rather based on 
reasonable cost.
    Response: We agree with the commenters who suggested we base the 
2005 payment rates for separately billable ESRD drugs on the actual 
dollar value of the acquisition costs as determined by the IG rather 
than the acquisition costs relative to the ASP. We also agree that we 
should update the IG acquisition costs to calculate 2005 rates. After 
consideration of the available price data, we have determined that the 
Producer Price Index (PPI) for prescription preparations is the most 
appropriate price measure for updating EPO and other separately 
billable drugs from 2003 to 2005. The PPI for prescription preparations 
is released monthly by the Bureau of Labor Statistics, and reflects 
price changes at the wholesale or manufacturer stage. By comparison, 
the Consumer Price Index (CPI) for prescription drugs reflects price 
changes at the retail stage. Because EPO and many of the separately 
billable drugs used by dialysis facilities are purchased directly from 
the manufacturer, the use of a price index that measures wholesale 
rather than retail prices is more appropriate. The PPI for prescription 
drugs is the measure used in the various market baskets that update 
Medicare payments to hospitals, physicians, skilled nursing facilities, 
and home health agencies. In addition, the PPI for prescription drugs 
was recommended for use in the proposed composite rate market basket 
detailed in the 2003 Report to Congress.
    Based on historical data through the second quarter of 2004, we 
used the Global Insight Inc. forecast of the PPI for prescription drugs 
to determine the update factors for 2004 and 2005. We feel the use of 
an independent forecast, in this case from Global Insight Inc., is 
superior to using the Naational Health Expenditure projections for drug 
prices (which is the CPI for prescription drugs) and is consistent with 
the methodology used in projecting market basket increases for Medicare 
prospective payment systems.
    We also agree with those commenters who suggested that the drugs 
not contained in the IG study should be paid at ASP plus 6 percent. We 
believe it is appropriate for the payment amount for these drugs when 
separately billed by ESRD facilities during 2005 to be the same as the 
payment amount for other entities that are paid by Medicare on other 
than a cost or prospective payment basis. We do not agree with 
commenters that we should establish separate drug payment rates for 
large and small providers. For reasons discussed in the section of this 
final rule on the ESRD composite rate, we believe it is appropriate to 
establish a single add-on payment to the composite rate and therefore 
appropriate to establish the same drug payment rates for both large and 
small providers. We do not believe it is appropriate to base the 
payment amount on only the higher acquisition cost of the facilities 
not owned or managed by the four largest providers and not take into 
account the acquisition costs of the largest four providers who 
represent the majority of the drug expenditures. Section 
1881(b)(13)(A)(ii) of the Social Security Act refers to ``the 
acquisition cost of the drug or biological'' and not the acquisition 
costs of the drug or biological. In accordance with the statute and our 
understanding of Congressional intent for 2005, we believe it is more 
appropriate to base the 2005 payment amounts on a weighted average of 
the acquisition costs of the four largest providers and the other

[[Page 66303]]

facilities rather than base the 2005 payment amounts solely on the 
acquisition costs of the other facilities.
    In response to the commenters who requested clarification of the 
payment basis for separately billable ESRD drugs other than EPO billed 
by hospital-based ESRD facilities, we did not propose changes to the 
reasonable cost payment basis for these drugs. The OIG did not study 
separately billable ESRD drugs other than EPO billed by hospital-based 
ESRD facilities and accordingly, we did not propose to change the 
payment basis for these drugs.

e. Payment for Infusion Drugs Furnished Through an Item of DME

    In 2005, section 1841(o)(1)(D)(i) of the Act requires that 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. No commenters objected.
2. Drug Administration Payment Policy and Coding Effective in 2005
    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 (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.
    The AMA's CPT Editorial Panel established a workgroup, with 
representatives from affected specialties that met earlier this year to 
develop recommendations to the CPT Editorial Panel in August. Based on 
these recommendations, that panel adopted several new drug 
administration codes and revised several existing codes. Subsequently, 
the AMA's Relative Value Update Committee (RUC) met at the end of 
September to make recommendations to us on the practice expense 
resource inputs and work relative values for the new and revised drug 
administration codes.
    We indicated in the proposed rule that we would consider whether it 
is necessary for us to make coding changes effective January 1, 2005 
through the use of G-codes (because the 2005 CPT book will have already 
been published), and we requested public comment. As described in 
detail below, we are establishing new G-codes for 2005 that correspond 
with the new CPT codes that will become active in 2006. These new G-
codes are interim until 2006.
    The new CPT codes can be categorized into the following three 
categories of drug administration services: infusion for hydration; 
nonchemotherapy therapeutic/diagnostic injections and infusions other 
than hydration; and chemotherapy administration (other than hydration) 
which includes infusions/injections. There are some important changes 
in the new codes relative to current drug administration coding. The 
infusion of substances such as monoclonal antibody agents or other 
biologic response modifiers is reported under the chemotherapy codes, 
instead of the nonchemotherapy infusion codes, as is currently the 
case. There are also new codes in both the chemotherapy and 
nonchemotherapy sections for reporting the additional sequential 
infusion of different substances or drugs.
    As we stated in the proposed rule, we 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 how the changes in 
payments for drugs and drug administration affect other specialties.
    We received many comments on various aspects of coding and payment 
for drug administration services in response to the proposed rule. We 
are also responding below to comments we received on the January 7, 
2004 interim final rule with comment period that announced the 
provisions of section 303 of the MMA affecting drug administration 
services that took effect in 2004 (69 FR 1094). Specifically, section 
303 of the MMA required the following changes in 2004: a transitional 
adjustment that increases payments for specific drug administration 
services by 32 percent in 2004 (and 3 percent in 2005); establishing 
work RVUs for certain drug administration services equal to the work 
RVUs for a level 1 office medical visit for an established patient; the 
incorporation of supplemental survey data in the calculation of the 
practice expense RVUs for drug administration codes; and allowing 
oncologists to bill for multiple drug administrations by the ``push'' 
technique on a single day.
    Comment: Many commenters supported the efforts to promptly evaluate 
existing drug administration codes to ensure accurate reporting and 
billing for services. They support our proposal to use G-codes until 
the new CPT codes are active. They asked us to adopt the 
recommendations of the CPT Editorial Panel for new drug administration 
codes.
    Response: We appreciate the support of the commenters of all of the 
efforts to expeditiously review and update these codes. We also would 
like to specifically recognize the efforts of the CPT Editorial Panel's 
Drug Administration Workgroup to develop the new CPT codes, the 
Editorial Panel for its consideration and approval of the new codes, 
and the RUC for its similar efforts to develop recommendations for the 
inputs for the new codes.
    We have reviewed the recommendations of the CPT Editorial Panel 
and, with one exception noted below, agree with their new and revised 
codes for drug administration for 2005. Because the new CPT codes will 
not be included in the 2005 CPT, we have decided to establish G-codes, 
where applicable. At this time, we anticipate these new G-codes will be 
temporary until the new CPT codes become active January 1, 2006.
    A listing of the old CPT codes and their corresponding G-codes are 
in the table below. Some of the old CPT codes will correspond to more 
than one G-code, and there are codes that will allow physicians to bill 
for services that previously did not have a code or were bundled into 
other services.
    The drug administration codes are divided into three categories: 
infusion codes for hydration; codes for therapeutic/diagnostic 
injections; and chemotherapy administration codes. The descriptions of 
the codes below are taken primarily from the AMA CPT Editorial Panel. 
We are including these specific descriptions here in order to provide 
as much information as possible about the new G-codes prior to their 
implementation on January 1, 2005. However, we anticipate that we will 
issue further instructions regarding the appropriate use of these G-
codes, including clarifications, interpretations, and other 
modifications to the following guidance (apart from the G-codes

[[Page 66304]]

themselves) as part of any instructions issued through a subregulatory 
process.
    The codes for hydration (G0345 and G0346 in the table below) are 
for reporting hydration intravenous (IV) infusions consisting of a 
prepackaged fluid and electrolytes. These codes are not used to report 
infusion of drugs or other substances. The codes for chemotherapy 
administration are to be used for reporting the administration of non-
radionuclide anti-neoplastic drugs, and anti-neoplastic agents provided 
for treatment of noncancer diagnoses, or substances such as monoclonal 
antibody agents and other biologic response modifiers. The remaining 
codes are for reporting injections and infusions for all drug 
administrations that were previously reported using CPT codes 90780-
90788, 96400, and 96408-96414 (other than those described above as 
hydration or chemotherapy).

[[Page 66305]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.503


[[Page 66306]]


[GRAPHIC] [TIFF OMITTED] TR15NO04.504

    The following coding guidance is based on the CPT Editorial Panel's 
explanatory language for the new CPT codes. As noted above, we plan to 
issue further guidance as needed.
    Infusions that were previously reported under CPT code 90780 (non-
chemotherapy infusion, 1st hour) will be billed under one of three G-
codes beginning January 1, 2005. The first hour of a hydration infusion 
will be billed under G0345. The first hour of infusion of a 
nonchemotherapy drug other than hydration will be billed under G0347. 
The first hour of infusion of anti-neoplastic agents provided for 
treatment of noncancer diagnoses or substances such as monoclonal 
antibody agents and other biologic response modifiers is billed under 
G0359.
    Similarly, services that were previously reported under CPT code 
90781 (non-chemotherapy infusion, each additional hour) will be billed 
under one of four G-codes beginning January 1, 2005. Each additional 
hour of a hydration infusion will be billed under G0346. Each 
additional hour of a nonchemotherapy infusion will be billed under 
G0348. Currently, if a second (or other subsequent) nonchemotherapy 
drug is administered sequentially, the physician would bill code 90781 
for the additional hour of infusion. Under the new G-codes, the 
physician will bill G0349, the sequential administration of a second or 
subsequent nonchemotherapy drug. In addition, each additional hour of 
the infusion of anti-neoplastic agents for the treatment of noncancer 
diagnoses or substances such as monoclonal antibodies and other 
biological modifiers is billed under G0360.
    Injections that were previously billed under CPT code 90782 will 
now be billed under HCPCS code G0351. Physicians should use HCPCS code 
G0352 for injections previously billed under CPT code 90783. 
Nonchemotherapy drugs administered by IV push (currently using CPT code 
90784) should now be billed under HCPCS code G0353. The CPT book does 
not currently contain a code for physicians to bill a second (or other 
subsequent) nonchemotherapy drug administered by IV push. The CPT 
Editorial Panel created a new code for each additional nonchemotherapy 
drug administered by IV push. For 2005, the physician should bill HCPCS 
code G0354.
    The CPT coding system will be deleting code 90788 (Intramuscular 
injection of antibiotic) in 2006. We are maintaining CPT code 90788 as 
an active code until it is changed in the CPT coding system and 
instructions are provided on the code to bill in its place beginning 
January 1, 2006.
    Chemotherapy injections, previously billed under the CPT code 
96400, will now be billed using one of two new G-codes. For injection 
of nonhormonal anti-neoplastic drugs, the physician should bill HCPCS 
code G0355. For injection of hormonal anti-neoplastic drugs, the 
physician should bill HCPCS code G0356. CPT is not recommending any 
changes to CPT codes 96405 (Chemotherapy administration; intralesional, 
up to and including 7 lesions) and 96406 (more than 7 lesions), and 
these codes will remain active for Medicare in 2005.
    Chemotherapy drugs administered by IV push (currently billed under 
CPT code 96408, or, if the drug meets the expanded definition of 
chemotherapy including monoclonal antibodies or other biologic response 
modifiers, currently billed under CPT code 90784) should be billed 
using G0357 for the initial drug administered. In 2004, Medicare paid 
for the second (or other subsequent) chemotherapy drug administered by 
IV push under CPT code 96408. CPT will be establishing a code that 
recognizes the resource inputs associated with each additional 
chemotherapy drug administered by IV push. For 2005, the analogous code 
to bill the second (or other subsequent) chemotherapy drug administered 
by IV push is G0358.
    The first hour of chemotherapy administration, previously billed 
under CPT code 96410, should now be billed under CPT code G0359. Each 
additional hour of chemotherapy (previously billed under CPT code 
96412) should now be billed under CPT code G0360. CPT is also 
recommending a new code for the first hour of a different chemotherapy 
drug administered sequentially by infusion. If a second chemotherapy 
drug is administered sequentially, the physician should bill for HCPCS 
G0362 for the first hour of infusion of the second drug. All additional 
hours (up to eight total hours) of chemotherapy infusion should be 
billed using HCPCS code G0360. Prolonged chemotherapy infusions (8 
hours or more, previously billed under code 96414) should be billed in 
2005 using HCPCS code G0361.
    For three codes (G0350, G0354, G0363), the table above has an ``N/
A'' listed in the ``Old CPT'' column, meaning there were no CPT codes 
that existed explicitly for these services. These services will now be 
billable under the new coding system. For instance, CPT will be 
establishing a code for a ``concurrent infusion.'' A concurrent 
infusion refers to the simultaneous infusion of two nonchemotherapy 
drugs. We are using temporary code G0350 for this service. Code G0350 
is an add-on code. It must be reported as an ``add-on'' or with another 
code and our payment reflects the incremental resources associated with 
infusing the second drug. For example, if two nonchemotherapy drugs are 
infused concurrently, the physician bills G0347 for the initial drug 
infused and G0350 as an add-on.

[[Page 66307]]

    As indicated above, HCPCS code G0354 is a new code for each 
additional sequentialnonchemotherapy drug administered by IV push. 
HCPCS code G0354 is also an add-on code. In general, G0354 will be an 
add-on to G0353. However, it is possible that a nonchemotherapy drug 
administered by IV push may follow the administration of a chemotherapy 
drug administered by IV push, and HCPCS code G0354 would then be an 
add-on to HCPCS code G0357.
    HCPCS code G0363 is a new code for irrigation of an implanted 
venous access device. There is currently no code to describe this 
service. Medicare will pay for G0363 if it is the only service provided 
that day. If there is a visit or other drug administration service 
provided on the same day, payment for this service is bundled into 
payment for the other service.
    We are creating the following new add-on G-codes: G0346, G0348, 
G0349, G0350, G0354, G0358, G0360 and G0362. As indicated above, add-on 
codes must be billed with other codes, and our payment reflects the 
incremental resources associated with providing the additional service. 
The initial codes that these add-on codes could potentially be billed 
with include: G0345, G0347, G0353, G0357 and G0359. If a combination of 
chemotherapy, nonchemotherapy drugs, and/or hydration is administered 
by infusion sequentially, the initial code that best describes the 
service should always be billed irrespective of the order in which the 
infusions occur.
    Comment: In the January 7, 2004 interim final rule with comment, we 
revised our payment policy for pushes of chemotherapy drugs to allow 
for payment of multiple pushes of different chemotherapy agents in one 
day. A commenter asked that we revise our policy for multiple pushes of 
nonchemotherapy agents, to allow multiple billings on a single day.
    Response: The CPT/RUC recommendations address this comment. New 
codes have been created to account for the resources associated with 
multiple chemotherapy and nonchemotherapy drugs administered by IV 
push. HCPCS code G0353 is used for the initial IV push of a 
nonchemotherapy drug, while HCPCS code G0354 is used for each 
additional push of a nonchemotherapy drug. For chemotherapy drugs 
administered by IV push, HCPCS code G0357 is used for the first drug 
administered, while HCPCS code G0358 is used for each additional drug.
    We also note that existing CPT codes 90782-90788 (Therapeutic, 
prophylactic or diagnostic injections) currently have a status 
indicator of ``T'', which means that payment for the service is bundled 
unless it is the only service billed by the physician for the patient 
that day. However, based on the RUC recommendations and the resulting 
values for the injection services, we are making the status indicator 
on HCPCS codes G0351--G0354 an ``A'', which will allow them to be 
separately paid even if another physician fee schedule service is 
billed for the same patient that day.
    Comment: A commenter stated that, given the increased work and 
practice expense RVUs for drug administration codes, it follows that 
both the work and practice expense RVUs for the immunization 
administration codes (90471, 90472, 90473, and 90474) should also be 
increased. The commenter argued that the service involved in 
administering vaccines is more intense/complex than the service 
involved in the drug infusion codes.
    Response: We agree with the commenter that the physician work and 
practice expenses associated with administering injections are similar 
to immunizations. In addition, we would point out that we currently pay 
for vaccine administrations (G0008-G0010) based on crosswalking the 
RVUs to CPT code 90471. Therefore, any changes to the physician work 
and practice expense RVUs for code 90471 would also affect payments for 
vaccine administrations.
    Because we agree these services should be similar in the amount of 
physician work involved, we are assigning the physician work value 
recommended by the RUC for code 90782 (G-code G0351) to code 90471 and 
HCPCS G-codes G0008-G0010. We are combining the utilization data for 
all of these codes to determine a single practice expense RVU that will 
be applied to each of these codes.
    We are also assigning a work RVU of 0.15 to code 90472. Codes 90473 
(Immunization administration by intranasal or oral route; one vaccine 
(single or combination vaccine/toxoid)) and 90474 (Each additional 
vaccine (single or combination vaccine/toxoid)) are currently not 
covered. We are changing the status of these codes to ``R'', or 
restricted, meaning they are payable under some circumstances after 
carrier review. These codes will be carrier priced.
    Comment: If a patient receives chemotherapy infusions, CPT code 
96410 is used to report the infusion of the first drug up to one hour. 
Chemotherapy drugs are usually administered sequentially. Thus, if a 
patient receives the administration of a second chemotherapy drug at 
the same treatment session, CPT code 96412 is used to report the 
infusion of the second drug for each additional hour of infusion. In 
2004, the national payment, including the transitional payment 
adjustment of 32 percent, for CPT code 96410 is $217. The comparable 
payment for CPT code 96412 is $48.
    Commenters pointed out that this policy does not take into account 
the levels of complexity of administration and resource consumption. 
The administration of multiple drugs requires additional preparation 
time, supplies, and patient education, not currently accounted for in 
CPT code 96412.
    Response: The CPT/RUC recommendations addressed this issue. We are 
implementing new code G0362, Chemotherapy administration, intravenous 
technique; each additional sequential infusion, up to one hour. This 
code will allow, effective January 1, 2005, physicians to begin to bill 
for the first hour of chemotherapy of the second chemotherapy drug 
administered.
    Comment: Several commenters requested clarification that the 
changes to the drug administration codes resulting from the CPT changes 
and our G-codes would be exempted from budget neutrality by the 
provision at section 1848(c)(2)(B)(iv)(III), as added by MMA section 
303(a)(1). This provision stipulates that the evaluation of the 
existing drug administration codes described above as leading to the 
interim G-codes and the new CPT codes for 2006, is to be exempt from 
budget neutrality.
    Response: The commenters are correct that the additional 
expenditures that result from the interim G-code changes we are 
implementing in this rule are exempt from budget neutrality.
    Comment: Several commenters asked that we continue payment for drug 
administration codes at the 2004 levels, which included the 32 percent 
transitional payment adjustment, instead of paying at the 3 percent 
transitional payment adjustment for 2005, or adopt other measures. For 
example, commenters suggested temporary codes to offset the large 
reductions that would otherwise go into effect in 2005.
    Response: Section 303(a)(4) of the MMA is very specific on the 
application of the transitional payment adjustments in 2004 and 2005. 
We do not have the legal authority to continue payments based on the 
2004 payment levels. In 2005, the transitional adjustment percentage 
for drug administration

[[Page 66308]]

decreases from 32 percent to 3 percent. No transitional percentage is 
applied in 2006 or subsequent years.
    Comment: One commenter requested additional temporary G-codes to 
offset the payment reductions for oncologists that would otherwise go 
into effect in 2005. According to this commenter, the payment amount 
associated with each of these codes would be a percentage add-on amount 
sufficient to offset the reductions in drug margins and payments for 
drug administration services.
    Response: We have worked extensively with the major associations 
representing oncologists and their patients to ensure that Medicare 
continues to pay appropriately for these extremely critical services. 
The payment changes we made for 2004, the new G-codes, and allowing 
additional payment for injections and additional infusions, either have 
already increased, or will increase, payments for drug administration 
services. The impacts of these changes are discussed extensively in the 
impact analysis section of this final rule.
    In addition, as we indicated above, we 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.
    Comment: One commenter expressed concern that the reductions in 
payments to oncologists described in the proposed rule could make it 
difficult, if not impossible, for many patients to continue to access 
cancer care in nonhospital community settings.
    Response: As noted above, we have taken several steps to increase 
payments for drug administration services in this final rule. We 
recognize that oncology patients in the Medicare population undergoing 
chemotherapy face serious and unique issues and problems related to 
quality of care throughout the life cycle of their disease process; 
from the time of first diagnosis, through treatment, until the patient 
experiences an end to medical (including hospice) care. Patients, 
national cancer organizations, and medical providers have identified 
certain factors that they believe affect the comfort and ultimately the 
care for cancer patients in the physician office setting.
    We believe that the goals and objectives of optimal treatment 
include reviewing and analyzing pain control management, minimization 
of nausea and vomiting, explaining treatment options, outlining 
existing chemotherapy regimens, assessing quality of life, assessing 
patient symptoms and complaints, supporting and educating caregivers, 
and avoidance of unnecessary Emergency Department visits and inpatient 
hospitalizations. Further, we believe that clinicians armed with 
appropriate assessments can proactively intervene with medical 
treatment and nonmedical assistance to help ameliorate some of the 
distressing and unpleasant, but frequent and predictable, events that 
may accompany certain cancers and chemotherapeutic regimens used to 
combat cancer.
    The Secretary has been given the authority under sections 
402(a)(1)(B) and 402(a)(2) of the Social Security Act Amendments of 
1967 (Pub. L. 90-248), as amended, to develop and engage in experiments 
and demonstration projects to provide incentives for economy, while 
maintaining or improving quality in provision of health services. In 
order to identify and assess certain oncology services in an office-
based oncology practice that positively affect outcomes in the Medicare 
population, we will initiate a one-year demonstration project for CY 
2005. While we encourage optimal care in all facets of treatment, the 
focus of the demonstration project will be on three areas of concern 
often cited by patients: pain control management, the minimization of 
nausea and vomiting, and the reduction of fatigue.
    Practitioners participating in the project must provide and 
document specified services related to pain control management and 
minimization of nausea and vomiting, and the reduction of fatigue. To 
facilitate the collection of this information, we have established 12 
new G-codes to be reported by program participants.

G-Codes for Assessment of Nausea and/or Vomiting

    G9021: Chemotherapy assessment for nausea and/or vomiting, patient 
reported, performed at the time of chemotherapy administration; 
assessment level one: not at all (for use in a Medicare-approved 
demonstration project).
    G9022: Chemotherapy assessment for nausea and/or vomiting, patient 
reported, performed at the time of chemotherapy administration; 
assessment level two: a little (for use in a Medicare-approved 
demonstration project).
    G9023: Chemotherapy assessment for nausea and/or vomiting, patient 
reported, performed at the time of chemotherapy administration; 
assessment level three: quite a bit (for use in a Medicare-approved 
demonstration project).
    G9024: Chemotherapy assessment for nausea and/or vomiting, patient 
reported, performed at the time of chemotherapy administration; 
assessment level four: very much (for use in a Medicare-approved 
demonstration project).

G-Codes for Assessment for Pain

    G9025: Chemotherapy assessment for pain, patient reported, 
performed at the time of chemotherapy administration, assessment level 
one: not at all (for use in a Medicare-approved demonstration project).
    G9026: Chemotherapy assessment for pain, patient reported, 
performed at the time of chemotherapy administration, assessment level 
two: a little (for use in a Medicare-approved demonstration project).
    G9027: Chemotherapy assessment for pain, patient reported, 
performed at the time of chemotherapy administration assessment level 
three: quite a bit (for use in a Medicare-approved demonstration 
project).
    G9028: Chemotherapy assessment for pain, patient reported, 
performed at the time of chemotherapy administration, assessment level 
four: very much (for use in a Medicare-approved demonstration project).

G-Codes for Assessment for Lack of Energy (Fatigue)

    G9029: Chemotherapy assessment for lack of energy (fatigue), 
patient reported, performed at the time of chemotherapy administration, 
assessment level one: not at all (for use in a Medicare approved 
demonstration project).
    G9030: Chemotherapy assessment for lack of energy (fatigue), 
patient reported, performed at the time of chemotherapy administration, 
assessment level two: a little (for use in a Medicare approved 
demonstration project).
    G9031: Chemotherapy assessment for lack of energy (fatigue), 
patient reported, performed at the time of chemotherapy administration, 
assessment level three: quite a bit (for use in a Medicare approved 
demonstration project).
    G9032: Chemotherapy assessment for lack of energy (fatigue), 
patient reported, performed at the time of chemotherapy administration, 
assessment level four: very much (for use in a Medicare-approved 
demonstration project).
    The codes correspond to four patient assessment levels (``not at 
all,'' ``a little,'' ``quite a bit,'' or ``very much'') for each of the 
following three patient status factors: nausea and/or vomiting;

[[Page 66309]]

pain; and lack of energy (fatigue). These levels, based on the 
Rotterdam scale, were chosen since they appear to be less burdensome 
for the practitioner and more easily understood by the patient. 
Participating practitioners must bill the applicable G-codes for each 
patient status factor (that is, one G-code each for patient comfort 
assessment factors: nausea and/or vomiting; pain; and fatigue) assessed 
during a chemotherapy encounter in order to receive payment under the 
demonstration. A G-code for each patient status factor must appear on 
the claim for payment to be made under the demonstration project. A 
patient chemotherapy encounter is defined as chemotherapy administered 
through intravenous infusion or push, limited to once per day. During 
the course of the demonstration, an additional payment of $130 per 
encounter will be paid to participating practitioners for submitting 
the patient assessment data as described above.
    Any office-based physician or nonphysician practitioner operating 
within the State scope of practice laws who takes care of and 
administers chemotherapy to oncology patients in an office setting is 
eligible to participate in this demonstration project. By billing the 
designated G-codes, the practitioner self-enrolls in the project and 
agrees to all of the terms and conditions of the demonstration project.
    This information will help us to work with those who care for 
cancer patients to determine ways to improve the quality of care and 
quality of life for patients as demonstrated by measuring objective 
parameters and the medical response to those standardized measurements. 
The evaluation of the project will be based on data reported to us by 
the practitioners and the use of our administrative claims data to 
examine Emergency Department visits and inpatient hospitalizations.
    We anticipate that further information regarding this demonstration 
project will be forthcoming after publication of this final rule.
    Comment: Commenters pointed out that, under the MMA, we added 
physician work RVUs to specified drug administration codes equivalent 
to a level 1 established office visit. They indicated that we should 
also have increased the practice expense inputs for the same drug 
administration codes to account for the practice expense inputs 
associated with a level 1 established office visit.
    Response: Section 1848(c)(2)(H)(iii) of the Act (as added by 
303(a)(1)(B) of the MMA) specified that we increase the work RVUs for 
drug administration services equal to the work RVUs for a level 1 
established patient office visit (CPT code 99211). As indicated in the 
January 7, 2004 Federal Register (69 FR 1093), we established work RVUs 
of 0.17 for specific CPT codes that met the statutory definition of 
``drug administration services.''
    However, the legislation did not direct us to also increase the 
practice expense RVUs of the drug administration codes to include the 
clinical staff time associated with a level 1 office visit. The 
practice expense inputs of the existing CPT codes for drug 
administration were refined in 2002. We believe the recommendations 
from the PEAC included the typical clinical staff time associated with 
each drug administration service.
    The CPT Editorial Panel approved new and revised codes for drug 
administration services for 2005. Depending upon the service, the RUC 
is recommending work RVUs for the new drug administration codes that 
may equal, exceed or be less than 0.17. Although section 
1848(c)(2)(H)(iii) of the Act requires that the work RVUs for drug 
administration services shall equal those of a level 1 office medical 
visit, new subparagraph (J) requires the Secretary to ``promptly 
evaluate existing drug administration codes for physicians' services''. 
The statute further indicates that the ``Secretary shall use existing 
processes for the consideration of coding changes and * * * in 
establishing relative values * * * ''
    Because we typically use the CPT and RUC processes to establish 
codes and relative values, we believe the statute gives us authority to 
establish work RVUs at a level other than those of a level 1 
established patient office visit. Therefore, for 2005, we are accepting 
the RUC recommendations for the interim G-codes even though they result 
in work RVUs that are different than 0.17.
    Comment: Several organizations and physicians commented that the 
Medicare payments for the chemotherapy codes do not include payment for 
many services provided by an oncology practice. These services include 
support services such as nutrition counseling, social work services, 
case management, psychosocial counseling, and educational services 
provided by an oncology nurse to the patient.
    Response: Under certain circumstances, Medicare does make explicit 
payment for clinical social worker and medical nutrition therapy 
services. Medicare can pay separately for the services of clinical 
psychologists (CPs), clinical social workers (CSWs), and nurse 
practitioners (NPs), clinical nurse specialists (CNS) and physician 
assistants (PAs).
    CPs can bill directly for services and supplies they are legally 
authorized by the State to perform that could also be furnished by a 
physician or incident to a physician's service. Payment for CP services 
is made at 100 percent of the physician fee schedule for services they 
are authorized to provide that are comparable to those of a physician.
    CSWs can furnish services for the diagnosis and treatment of mental 
illnesses that they are legally authorized by the State to provide. 
Payment for CSW services is made at 75 percent of the CP fee schedule, 
which is 100 percent of the physician fee schedule.
    NPs, CNSs and PAs can bill for mental health services consistent 
with their authority under law to furnish physician services. They may 
also bill for services furnished incident to their own professional 
services that fall under the State scopes of practice. Payment for 
these services is made at 85 percent of the physician fee schedule. 
Medicare will pay for medical nutrition therapy services provided by a 
registered dietitian or nutrition professional for a beneficiary with 
diabetes or renal disease. Based on a comment on our August 20, 2003 
proposed rule (68 FR 50428), we understand that social worker services 
could involve different tasks (``helping patients with their health 
insurance, filling and refilling prescriptions'') than those that are 
explicitly paid for by Medicare. However, we believe Medicare does pay 
for these services indirectly through the practice expense RVUs for 
drug administration services. If these services are typically provided 
to cancer patients, we believe the RUC could consider whether it is 
possible for resource inputs for these types of staff to be 
incorporated into the new drug administration codes. We also believe 
that the RUC could consider whether these types of staff activities are 
unique to physicians who provide drug administration or if they apply 
to other physicians' services as well.
    Comment: Current CPT code 96412 (infusion techniques, one to 8 
hours, each additional hour) is an add-on code, billed in addition to 
the primary code, 96410 (the first hour of chemotherapy). There is no 
national coding policy that explains how this add-on code is to be 
reported if less than a full hour of chemotherapy infusion is provided. 
A commenter pointed out that the Medicare carriers have different 
policies for reporting this service. Some carriers require the infusion 
to extend at least 16 minutes into the subsequent hour before

[[Page 66310]]

an add-on code can be billed, and others impose a 31 minute 
requirement. The commenter asked that we establish a uniform policy for 
the carriers to follow.
    Response: The CPT Editorial Panel addressed this issue as part of 
its review of the drug administration codes. Effective in 2006, the 
add-on code is to be used for ``infusion intervals of greater than 
thirty minutes beyond one hour increments''. We are adopting this 
policy for chemotherapy administration codes furnished on or after 
January 1, 2005.
    Comment: The nonchemotherapy subcutaneous injection is currently 
reported and paid under CPT code 90782, while a chemotherapy 
subcutaneous injection is currently reported under CPT code 96400. Some 
commenters recommended that we permit billing for nonchemotherapy 
injections for cancer patients to be made under CPT code 96400. They 
believe this code more appropriately reflects the practice expenses 
related to supportive care for chemotherapy.
    Response: The CPT Editorial Panel explicitly addressed this issue 
by creating separate drug administration codes for hydration, 
nonchemotherapy infusions and injections, and chemotherapy infusions 
and injections. It further expanded the definition of chemotherapy to 
include those drugs where the resource costs associated with the drug 
administration are similar to those administered as anti-neoplastics. 
Other drugs administered in support of chemotherapy, such as anti-
emetics and drugs to prevent anemia, are billed using the injection 
code, G0351, which replaces CPT code 90782 (consistent with the CPT 
recommendations). We have reviewed the practice expense inputs for this 
code from the RUC and accepted their recommendation.
    Comment: Some commenters asked that complex non-oncology infusions, 
such as Remicade, be paid at the same level as chemotherapy infusions. 
They indicate that these nonchemotherapy infusions have similar 
complexity and resource use as chemotherapy infusions.
    Response: The CPT recommendations address this issue. The codes for 
chemotherapy administration are for reporting the administration of 
non-radionuclide, anti-neoplastic drugs, anti-neoplastic agents 
provided for treatment of noncancer diagnoses or substances such as 
monoclonal antibody agents, and other biologic response modifiers.
    Comment: Some commenters inquired about the recognition of a severe 
drug reaction management code that could be used during the 
administration of high complexity biologic medications and less 
frequently during other drug administrations or chemotherapy services. 
While the CPT Drug Administration Workgroup supported the creation of a 
severe drug reaction management code, the CPT Editorial Panel did not 
approve this code.
    Response: We recognize that considerable physician effort may be 
required to monitor and attend to patients who develop significant 
adverse reactions to chemotherapy drugs, or otherwise have 
complications in the course of chemotherapy treatment. Physicians may 
not be aware that these services can be billed using existing CPT 
codes. The following scenarios are examples where existing codes may be 
used in addition to the routine billing for the physician's care of a 
cancer patient:
     Bill for the Physician Visit. If a patient has a 
significant adverse reaction to drugs during a chemotherapy session and 
the physician intervenes, the physician could bill for a visit in 
addition to the chemotherapy administration services.
     Bill for the Higher-Level Physician Visit. If the patient 
had already seen the physician prior to a chemotherapy session for a 
problem that is unrelated to the supervision of the administration of 
chemotherapy drugs, the physician may bill a visit for a significant 
adverse drug reaction. The total time, resources, and complexity of the 
physician's interaction with the patient may justify a higher level of 
visit service.
     Bill for a Prolonged Service. If the patient had a 
physician visit prior to the chemotherapy session and experienced a 
significant adverse reaction to drugs on the same day, the physician 
can bill a prolonged service code in addition to the physician visit. 
There are several code combinations to use depending on the number of 
minutes involved. The physician must have a face-to-face encounter with 
the patient and must spend at least 30 minutes beyond the threshold or 
typical time for that level of visit for the physician to bill for the 
prolonged service code.
     Bill for Critical Care Service. If the patient had a 
physician visit prior to the chemotherapy session and experienced a 
life-threatening adverse reaction to the drugs, the physician could 
bill for a critical care service in addition to the visit if the 
physician's work involves at least 30 minutes of direct face-to-face 
involvement managing the patient's life-threatening condition. Examples 
of life-threatening conditions are: central nervous failure, 
circulatory failure, shock, renal, hepatic, metabolic, and/or 
respiratory failure.
    These instructions are published here for informational purposes, 
and we anticipate that we will issue further instructions regarding the 
appropriate use of these G-codes including clarifications, 
interpretations and other modifications to the following guidance as 
part of any instructions issued through a subregulatory process.
    Comment: The American Urological Association (AUA) commented in 
response to the January 7, 2004 interim final rule to ask us to include 
the following codes in the MMA-mandated evaluation of existing drug 
administration codes for physicians' services to ensure accurate 
reporting and billing for such services: CPT codes 11980, 11981, 11982, 
11983, 51700, 51720, 54200, 54231, and 54235. The AUA asked that we 
consider applying the transitional adjustment payment to these codes 
for 2005.
    Response: We presented these codes to the CPT Drug Administration 
Workgroup. After subsequent discussion with representatives of the AUA, 
the AUA withdrew these codes from consideration by the workgroup.
    These codes are not subject to the ``transitional adjustment 
payment provision'' because they are not included in the definition of 
``drug administration codes.''
    Comment: Ophthalmologists frequently perform the procedure 
photodynamic therapy (CPT code 67221 and 67225) by infusing the drug 
Visudyne. While separate payment is allowed for the drug, the infusion 
is considered an integral part of the photodynamic therapy code. Thus, 
the physician is not allowed to bill a separate code for the infusion 
of the drug.
    According to one commenter, Visudyne is also a drug used in cancer 
chemotherapy. The commenter pointed out that when Visudyne is provided 
for photodynamic therapy, ophthalmologists incur drug administration 
costs similar to oncologists who use infused drugs.
    The AAO asked why we did not include CPT codes 67221 and 67225 
among the drug administration codes that benefited under the MMA.
    Response: In this instance, the infusion of the drug is an integral 
part of the surgical procedure and it was valued by the RUC and CMS 
that way. The code of which it is a part is not considered a drug 
administration code under section 303 of the MMA.
3. Blood Clotting Factor
    For clotting factors furnished on or after January 1, 2005, we 
proposed to establish a separate payment of $0.05

[[Page 66311]]

per unit to hemophilia treatment centers, homecare companies and other 
suppliers 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 furnishing 
fee for the items and services associated with the furnishing of blood 
clotting factor.
    Based on a review of the Government Accountability Office (GAO) 
report and data received from various clotting factor providers, we 
proposed a furnishing fee in order to 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 must 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 upon implementation of the ASP-based payment rates, payment 
for blood clotting factors will more closely reflect acquisition costs, 
since payment will be based on the average sales price as reported by 
drug manufacturers plus 6 percent.
    Therefore, we stated in the August 5, 2004 proposed rule that in 
the absence of additional data we believe that a furnishing fee of 
$0.05 per unit for the cost of delivering clotting factor is an 
appropriate amount. However, we also sought updated data and comments 
on the GAO report, as well as information on the fixed and variable 
costs of furnishing clotting factor. We recognized that there may be 
alternatives to a fee, which varies entirely based on the number of 
units of clotting factor furnished. We indicated we would 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.
    We received comments from various sources including, but not 
limited to, hemophilia treatment centers, hemophilia coalitions, and 
other suppliers of clotting factors regarding our request for 
additional data and information on the appropriateness of our proposed 
fee. The comments and responses are provided below.
    Comment: Many commenters recommended that we incorporate cost 
information received from homecare providers and any updated cost data 
from hemophilia treatment centers in determining the separate 
furnishing fee payment amount for 2005. The commenters cited an 
industry-sponsored survey of full-service hemophilia homecare companies 
that recommended a furnishing fee of $0.20 per unit. This survey 
collected CY 2003 data from three hemophilia homecare suppliers that 
the commenter indicated supplied 42 percent of all Medicare hemophilia 
patients. Commenters also stated that the GAO report was inadequate to 
serve as the basis for determining the separate payment for clinically 
appropriate items and services related to furnishing blood clotting 
factor. They questioned the accuracy of the recommended payment range 
in the GAO report, given what they viewed as an insufficient sample 
size; that is, the GAO report received data from only 4 hemophilia 
treatment centers and lacked any cost data from national or regional 
full-service hemophilia homecare providers. These commenters also 
indicated that the GAO survey may have included homecare companies that 
purchase clotting factor at a lower price through the Public Health 
Service's 340B program. More information on the 340B program is 
available on the Health Resources and Services Administration's Web 
site at http://bphc.hrsa.gov/opa/howto.htm. The commenters also stated 

that the GAO report focused solely on estimating providers' blood 
clotting factor delivery costs, which the GAO defined as inventory 
management, storage, shipping, and the provision of ancillary supplies. 
According to the commenters, the MMA directed us to establish a 
separate payment for items and services related to the furnishing of 
blood clotting factor that takes into consideration a wider range of 
items and services than the delivery costs addressed in the GAO report, 
for example patient education.
    Response: We agree with the commenters that full-service hemophilia 
homecare companies provide services that may be of benefit to Medicare 
beneficiaries with hemophilia, such as disease and patient management 
activities. However, we do not believe that the scope of the furnishing 
fee includes these services. As noted above, Section 303(e) specifies 
the items and services that may be taken into consideration in setting 
the furnishing fee. Disease and patient management activities are not 
included in the items and services specified in Section 303(e). 
However, these activities may be more appropriately addressed through a 
future phase of the new Medicare Chronic Care Improvement Program.
    The new Medicare Chronic Care Improvement Program is an important 
component of the MMA and demonstrates a commitment to improving and 
strengthening the traditional fee-for-service Medicare program. This 
program is the first large-scale chronic care improvement initiative 
under the Medicare fee-for-service program. We will select 
organizations that will offer self-care guidance and support to 
chronically ill beneficiaries. These organizations will help 
beneficiaries manage their health and adhere to their physicians' plans 
of care, and help ensure that they seek or obtain medical care that 
they need to reduce their health risks. More information regarding this 
program is available on the CMS Web site at http://www.cms.hhs.gov/medicarereform/ccip/
.

    With regard to the other costs identified in the comments and in 
the industry-sponsored survey, we also do not believe the scope of a 
furnishing fee includes costs associated with sales and marketing. We 
do not believe it is appropriate to build an explicit profit margin 
into the furnishing fee, but rather have the margin associated with the 
furnishing fee result from efficient furnishing of clotting factor. We 
agree with the commenters that the GAO report did not include amounts 
for education and that these are appropriate for the furnishing fee. 
Therefore, after removing the costs associated with sales and 
marketing, an explicit profit margin, and patient management, the 
resulting figure from the homecare survey is $0.14 per unit of clotting 
factor. We are establishing the furnishing fee for 2004 at $0.14 per 
unit of clotting factor. For years after 2005, the MMA specifies that 
the furnishing fee for clotting factor must be updated by the 
percentage increase in the consumer price index for medical care for 
the 12-month period ending with June of the previous year.
    Comment: One commenter recommended that the beneficiary's 20 
percent coinsurance not be applicable to this separate payment. The 
commenter indicated that the additional financial

[[Page 66312]]

burden would limit many beneficiaries' access to this lifesaving 
product.
    Response: Under provisions designed to protect the Medicare program 
from fraud and abuse, a broad waiver of beneficiary cost sharing of the 
type the commenter recommends would not be permitted. However, we make 
no statement regarding the applicability of existing statutory and 
regulatory provisions that may allow for the waiver of cost sharing in 
certain cases.
4. Supplying Fee
    Section 1842(o)(6) of the Social Security Act requires the 
Secretary to pay a supplying fee (less applicable deductible and 
coinsurance) to pharmacies for 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 determined 
appropriate by the Secretary. 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 and did not establish a 
separately billable supplying fee.
    Effective January 1, 2005, we proposed to establish a separately 
billable supplying fee of $10 per prescription for immunosuppressive 
drugs, oral anti-cancer chemotherapeutic drugs and oral anti-emetic 
drugs. We based this proposed fee on information provided by retail 
chain pharmacies on the costs of supplying these drugs to non-Medicare 
patients combined with steps to reduce the administrative burden 
associated with billing Medicare.
    We also sought data and information on the additional services 
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. Additionally, we 
requested comments concerning 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.
    Comment: Several commenters stated that they were not in a position 
to determine whether the proposed $10.00 supplying fee was adequate 
since they did not know the actual 2005 payment rates for Part B drugs. 
These commenters indicated that the supplying fee needed to cover 
return on investment, the costs of supplying the drugs, and make up for 
any differences between the product costs and the ASP based payment for 
the drug. Some commenters indicated that aside from the adequacy of the 
ASP-based payment for the drug, a $10.00 supplying fee appeared to be 
too low. These commenters indicated that the average cost to a retail 
pharmacy to dispense a non-Medicaid third party or cash paying 
prescription ranges anywhere from $7.50-$8.00. The commenters indicated 
that Medicare should pay at least $2.00-$2.50 more per prescription 
since costs associated with supplying Medicare prescriptions are 
higher.
    We received a comment from a large retail pharmacy indicating that 
a supplying fee of $25 would be adequate to cover the higher costs of 
dispensing Medicare Part B oral drugs.
    We received comments from specialty immunosuppressive pharmacies 
that included information from a recent survey of their supplying 
costs. The survey indicated that the cost for specialty pharmacies to 
dispense Medicare Part B immunosuppressants is $35.48 per prescription. 
The specialty immunosuppressive pharmacies indicated that they provide 
services not typically provided by retail chain drug stores or large 
mail-order pharmacy benefit management companies. These services 
include direct patient care through pro-active pharmacist contact, 
expeditious processing and turnaround of medication orders, direct 
billing of Medicare and coordination of benefits on behalf of 
transplant patients to reduce the costs to the patients, and 
maintaining expensive immunosuppressant in stock to ensure timely 
receipt when needed by beneficiaries. These pharmacies also indicated 
that the retail chains typically do not supply immunosuppressive drugs 
or file Medicare claims.
    Several commenters indicated that the lack of on-line adjudication 
for Medicare claims was one of the major drivers, among other reasons, 
for the additional costs of supplying Medicare prescription.
    Response: We agree that the cost of supplying Medicare Part B oral 
drugs is higher than many other payers because of the lack of on-line 
adjudication for Medicare Part B oral drug claims. Due to operational 
issues, we do not anticipate the establishment of an on-line 
adjudication system in the near future. Accordingly, we believe it is 
appropriate to establish a supplying fee higher than the fees paid by 
some other payers with on-line adjudication. We note that many other 
payers with on-line adjudication have fees in the range of $5-$10 per 
prescription. We note that this is consistent with the approximately $8 
cost for non-Medicaid dispensing stated by some commenters and 
described earlier. Other than administrative costs associated with 
billing Medicare Part B for oral drugs, we do not agree with commenters 
that the supplying fee for these drugs should exceed the dispensing 
fees of other payers because we do not believe there are other 
significant differences between supplying Medicare Part B and other 
oral drugs. We also do not agree that the supplying fee should include 
product costs. Product costs are paid through the ASP + 6 percent drug 
payment system. For the additional burden associated with billing 
Medicare Part B for oral drugs, we note the commenters who suggested an 
additional fee of approximately $2 for Medicare billing costs. Added to 
the $8 non-Medicaid fee described above, this would result in a 
supplying fee of approximately $10. We also note the survey of the 
specialty immunosuppressive pharmacies that indicated Medicare claims 
processing costs of approximately $8. This same survey also indicated 
total personnel costs of approximately $9, a portion of which we assume 
is attributable to the additional work associated with Medicare 
billings because the comments indicated Medicare billing was labor-
intensive. Using the $5 to $10 figures for payers with on-line 
adjudication described above, the specialty pharmacy data on Medicare 
claims processing costs and personnel costs, we developed a range of 
possible supplying fees based on the specialty pharmacy data. Depending 
upon the portion of the personnel costs associated with Medicare 
billings, this would result in a supplying fee between a minimum of $13 
(= $5 + $8) and a maximum of $27 (= $10 + $8 + $9). The comment of the 
large chain pharmacy recommending a $25 supplying fee indicated that 
this amount would be adequate to cover the costs of supplying Medicare 
Part B drugs including the additional costs of processing Medicare 
claims; however, this amount included a margin for profit. We do not 
believe it is appropriate to build an explicit profit margin into the 
supplying fee, but rather have the margin associated with the supplying 
fee result from efficient supplying of these drugs. Although the profit 
margin included in the $25 was not explicitly stated in the comment, if 
we assume a 5 percent margin, then a supplying fee of approximately $24 
would cover the large chain pharmacy's

[[Page 66313]]

costs of supplying Medicare Part B drugs. We are not indicating that 5 
percent is an appropriate margin.
    There was variability in the submitted comments with respect to an 
appropriate supplying fee. On the low end, analysis of the submitted 
comments would indicate a supplying fee of $10. On the high end, the 
analysis would indicate a supplying fee of $27. Given the variability 
in the values and assumptions included in various calculations, we do 
not think it is appropriate to simply take the rounded midpoint of this 
range, $19, as the supplying fee. However, we do not think it 
appropriate to take the maximum amount of this range, $27, given that 
it is unlikely that all of the personnel costs indicated in the 
specialty pharmacy survey are related to the costs of billing for oral 
Medicare Part B drugs. The amount in the comment from the large chain 
pharmacy, after adjusting for a possible profit margin, or $24, is 
consistent with our belief that not all of the additional personnel 
costs identified in the specialty pharmacy survey are related to the 
costs of billing for oral Medicare Part B drugs. We are therefore 
establishing a per prescription supplying fee of $24 as the value 
consistent with both the large retail pharmacy comment (after making an 
adjustment for built-in profit margins) and the higher end of the broad 
range of the specialty pharmacy survey. Although we believe that a $24 
supplying fee coupled with the ASP-based drug payment will not result 
in any access problems for Medicare beneficiaries, we will monitor 
access as we implement the new ASP-based payment system.
    Comment: Some commenters recommended that we update the supplying 
fee annually. Some commenters indicated this fee should be updated by 
the average annual increase in the costs of pharmacies supplying these 
drugs to Medicare beneficiaries (costs such as rent, utilities and 
salaries), but no less than the increase in the medical care inflation 
index for the most recent twelve months for which it can be calculated 
before the next calendar year.
    Response: We will study the issue of appropriate future increases 
for the supplying fee and proceed, as necessary, through notice and 
comment rulemaking.
    Comment: A specialty organization suggested that we develop a 
sliding supplying fee, which would be calculated as a percentage of the 
cost that the pharmacy incurred in acquiring a particular drug.
    Response: We do not agree that the supplying fee should vary by 
product costs. Product costs are paid through the ASP-based drug 
payment system.
    Comment: Several commenters agreed with our suggestion to increase 
the supplying fee in the first month following a transplant, but 
recommended that we extend this increase to at least the first 3 months 
following the transplant. One commenter suggested that extra resources 
are associated with frequent changes in prescriptions during the 
initial month following a beneficiary's organ transplant. One commenter 
recommended a fee of $50 for an initial prescription fill. However, one 
commenter advocated against a supplying fee that distinguished between 
new and refill prescriptions stating that it would be impractical, of 
questionable benefit and would discourage long-term pharmacy-patient 
relationships as pharmacy providers would only have an incentive to 
serve patients in the short term.
    Response: We agree that additional costs are most likely to occur 
nearer the time when the beneficiary has a transplant. In order to 
recognize these costs, we are establishing a higher supplying fee of 
$50 for the supplying of the initial oral immunosuppressive 
prescription in the first month after a beneficiary has a transplant 
because the costs of supplying immunosuppressives are likely to be 
higher immediately following a transplant, when the practitioner is 
adjusting the dose of immunosuppressive drugs. With regard to the 
comment opposing higher supplying fees for new patients regardless of 
their transplant date, we agree with the commenter that it would result 
in inappropriate incentives and are not implementing any such fee.
    Comment: Commenters recommended that the supplying fee should 
account for the different prices paid by pharmacies and physicians, 
recognizing that these are separate classes of trade that may not have 
access to comparable pricing. Thus, we should increase the supplying 
fee associated with providing and overseeing the use of oral anti-
cancer drugs.
    Response: We do not agree that the supplying fee should vary by 
product costs. Product costs are paid through the ASP based drug 
payment system.
    Comment: Commenters recommended that we extend the supplying fee to 
physicians that directly supply covered oral anti-cancer, 
immunosuppressive and oral anti-emetic drugs to patients, as well as 
create a dose management and compliance fee for physicians that 
prescribe oral chemotherapy products. These commenters state that we 
could use the premise that the MMA does not provide a definition of the 
word ``pharmacy'' and we could permit payment of a supplying fee to 
include a physician acting in the capacity of a pharmacist. 
Alternatively, commenters suggested that we use its inherent 
reasonableness authority to extend the supplying fee to physicians.
    Response: Given our current understanding of Congressional intent, 
we do not believe it would be appropriate to pay a supplying fee to 
physicians. Moreover, we do not have sufficient data to determine 
whether our inherent reasonableness authority would apply in this 
instance. However, we will study these issues further.
5. Billing Requirements
    In the proposed rule, we proposed the following changes to certain 
billing requirements and clarified policy for other billing 
requirements in an effort to reduce a pharmacy's costs of supplying 
covered immunosuppressive and oral chemotherapy drugs to Medicare 
beneficiaries:
     Original signed order. We clarified Medicare's policy 
regarding the necessity of an original signed order before 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 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. The clarification of this 
requirement should 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.
    Comment: Commenters recommended that a prescription be filled and 
billed based solely on a verbal order from a physician and an actual 
signed written prescription should not be necessary before billing.
    Response: The policy that allows dispensing based on a verbal order 
but requires a written order for billing applies to all DMEPOS items. 
This policy balances fraud and abuse concerns with prompt dispensing of 
DMEPOS items to beneficiaries. We

[[Page 66314]]

point out that the written order from the physician can be faxed, 
photocopied, electronic, or pen and ink. We currently allow pharmacies 
to accept electronic prescriptions from physicians.
     Assignment of Benefits Form. We proposed to eliminate use 
of the Assignment of Benefits form for Part B items and services, 
including drugs, where Medicare payment can only be made on an assigned 
basis. For Part B covered oral drugs, this would be a means of reducing 
a pharmacy's costs of supplying these drugs to Medicare beneficiaries. 
Currently, pharmacies must obtain a completed Assignment of Benefits 
form in order to receive payment from Medicare. This requirement 
increases a pharmacy's cost of supplying covered drugs to Medicare 
beneficiaries, as other payers do not impose this requirement. Thus, we 
do not believe that it is necessary for an assignment of benefits form 
to be filled out for drugs covered under Part B, since payment for them 
can only be made on an assignment-related basis.
    Comment: Some commenters suggested that the Assignment of Benefits 
form be eliminated for diabetic supplies dispensed by pharmacy 
suppliers.
    Response: Our proposal to eliminate the Assignment of Benefits form 
applied to services where Medicare payment can only be made on an 
assigned basis. That is not the case with diabetic supplies. Thus, we 
are not eliminating the AOB form for diabetic supplies.
     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. 
This form is a one-time requirement that pharmacies must complete in 
order to receive payment. 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).
    Comment: Several commenters applauded our efforts to eliminate use 
of the DIF in an effort to reduce the cost that the billing 
requirements imposed. These commenters asked that we ensure that this 
requirement is applied uniformly by all the DMERCs.
    Response: We appreciate the support regarding the elimination of 
the DIF form. Action is being taken to eliminate the DIF form, 
including accommodating systems issues and providing for notifications. 
We anticipate resolution of issues to occur soon and elimination would 
occur next year.
     Other Billing Issues. We also received other comments 
regarding other billing issues related to the supplying of 
immunosuppressive, oral anti-cancer, and oral anti-emetic drugs.
    Comment: Commenters suggested that we allow physicians to bill the 
carrier when oral drugs are provided directly by the physician in his 
office rather than having the physician bill the DMERC for the oral 
anti-cancer drug. Others stated that we should allow for billing for 
pharmaceutical products to be conducted on current electronic 
platforms, because ``batch billing'' creates operational and patient 
care problems, and adds significant participation costs. Commenters 
also stated that we should eliminate the requirement for a diagnosis 
code to be present on the prescription; while, at the same time, adopt 
the usage of the physician's DEA number instead of the UPIN number when 
submitting claims.
    Response: We thank the commenters for identifying these issues. We 
plan to examine these aspects of billing.
6. Shipping Time Frame
    In the proposed rule, we highlighted the fact that the guidelines 
regarding the time frame for subsequent deliveries of refills of DMEPOS 
products had been revised. Effective February 2, 2004, the shipping of 
refills of DMEPOS products may occur ``approximately'' on the 25th day 
of the month in the case of a month's supply. In the proposed rule, we 
emphasized the word ``approximately''; while we indicated 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. 
This change should eliminate the need for suppliers to utilize 
overnight shipping methods and would permit the shipping of drugs via 
less expensive ground service.

F. Section 952--Revision to Reassignment Provisions

    As discussed in the August 5, 2004 proposed rule, section 
1842(b)(6)(A)(ii) of the Act, as amended by section 952 of the MMA, 
allows, in many circumstances, a physician or NPP to reassign payment 
for Medicare-covered services, regardless of the site of service, 
providing there is a contractual arrangement between the physician or 
NPP 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. The expanded exception created by 
section 952 of the MMA applies to those situations when an entity seeks 
to obtain the medical services of a physician or NPP.
    Section 952 of the MMA states that reassignment is permissible if 
the contractual arrangement between the entity that submits the bill 
for the service and the physician or NPP who performs the service meets 
the 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 NPP providing a service are both liable for any Medicare 
overpayments). The Conference Agreement also recommends that physicians 
or NPPs 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. In the 
August 5, 2004 rule, we proposed to revise Sec.  424.71 and Sec.  
424.80 to reflect these safeguards, as well as the expanded exception 
established by section 952 of the MMA.
    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). Section 952 of the MMA does not 
alter an individual or entity's obligations under any other applicable 
Medicare statutes or regulations governing billing or claims 
submission.
    In addition, physician group practices should be mindful that 
compliance with the physicians' services exception and the in-office 
ancillary services exception to the physician self-referral prohibition 
in section 1877 of the Act requires that a physician or NPP who is 
engaged by a group practice as an independent contractor may provide 
``designated health services'' to the group practice's patients only in 
the group's facilities. See the definition of physician in the group at 
42 CFR 411.351.
    We also cautioned that parties must be mindful that contractual 
arrangements involving reassignment may not be used to camouflage 
inappropriate fee-splitting arrangements

[[Page 66315]]

or payments for referrals. In the August 5, 2004 proposed rule, we 
solicited comments on potential program vulnerabilities and on possible 
additional program integrity safeguards to guard against those 
vulnerabilities.
    Comment: We received positive comments for the proposed changes to 
the reassignment rules from two physician associations and one 
association representing non-physician practitioners.
    Response: We are pleased to receive positive feedback to the 
changes to the reassignment rules. We believe these changes balance the 
need to respond to the changing business arrangements in the delivery 
of health care services with the need to protect the Medicare trust 
funds from fraudulent and abusive billing practices.
    Comment: An association representing emergency medicine physicians 
and numerous members of that association commented that requiring 
independent contractor physicians to have unrestricted access to the 
billings submitted on their behalf is not sufficient to ensure such 
access. The commenters requested that we revise our regulations to 
require the entity submitting the bills to provide duplicates of the 
Medicare remittance notices (which indicate the services billed and the 
amounts paid for those services) to the independent contractor 
physicians. Some of the commenters requested that we require 
independent contractor physicians to receive itemized monthly reports 
of the claims submitted and remittances received on their behalf.
    Response: We believe that requiring independent contractors to have 
unrestricted access to the billings submitted on their behalf is 
sufficient to satisfy the independent contractors' need to review the 
claims information.
    We recognize that some independent contractors may not wish to 
receive copies of all bills submitted on their behalf. It would place 
an unnecessary burden on entities if we require them to furnish 
duplicate remittance notices to independent contractors on a routine 
basis. Similarly, it would place a significant burden on our claims 
processing systems if we were obligated to provide duplicate remittance 
notices to those who have reassigned their payments. We note that the 
method and frequency of obtaining access to billing records is an issue 
that the independent contractor and the entity to which the independent 
contractor is reassigning payments can resolve in their written 
contract.
    Comment: A commenter asked whether or not the new reassignment 
exception (which essentially expanded or revised the previous 
exceptions pertaining to independent contractors), established by 
section 952 of the MMA, is available when one entity contracts with a 
second entity, which in turn contracts with a physician or non-
physician practitioner to furnish services for the first entity.
    Response: We refer to this situation as an indirect contractual 
arrangement between the independent contractor furnishing the service 
and the entity doing the billing and receiving payment (excluding 
billing agents). Thus, the reassignment is between the individual 
furnishing the service and the entity receiving the reassigned 
benefits. Indirect contractual arrangements were permissible prior to 
passage of section 952 of the MMA and remain permissible. The CMS-855-R 
enrollment form would need to be completed by the entity receiving the 
reassigned benefits and the person furnishing the service. In 
accordance with section 952 of the MMA, the contractual arrangement and 
any program integrity safeguard requirements deemed appropriate by the 
Secretary are between the independent contractor and the entity 
receiving the reassigned payments, with the program integrity 
safeguards applying to both parties. If the parties involved also wish 
to include the intermediary entity in a similar contract, and apply 
standards identical or similar to the program integrity safeguards to 
their arrangement, they have that option; but, it is not required or 
necessary to comply with the exception to the reassignment prohibition 
for contractual arrangements.
    Comment: Several members of the Congress urged us not to delay the 
enrollment process of providers or suppliers while implementing section 
952 of the MMA.
    Response: We do not expect any delays in provider or supplier 
enrollment to result from implementing the reassignment provisions of 
this regulation. We are sensitive to the need for an efficient and 
timely enrollment process. If the new reassignment exception results in 
the submission of a particularly high volume of claims, or if a 
Medicare contractor has to process a large number of new enrollment 
applications, it is possible that delays may occur in some cases. A 
provider or supplier whose enrollment was delayed must contact the 
appropriate Medicare contractor's provider or supplier enrollment 
office to discuss the reasons for the delay.
    Comment: A trade association of physician specialists asked that we 
clarify our definitions of onsite and off-site services. This trade 
association also requested that we further describe the potential 
program vulnerabilities that the revised Medicare reassignment 
exception might create.
    Response: We consider onsite services to be services of an 
independent contractor that are performed in space owned or leased by 
the entity billing and receiving the reassigned payments. We consider 
offsite services to be services of an independent contractor that are 
performed in space that is not owned or leased by the entity billing 
and receiving the reassigned payments, that is, services performed off 
the premises.
    The Congress originally passed the prohibition on reassignment 
provision due to experience with fraudulent and abusive billing 
practices. As we discussed in the preamble to the August 5, 2004 
proposed rule, the new reassignment exception for contractual 
arrangements will potentially permit myriad relationships and financial 
arrangements. Some of these relationships may have the potential to 
increase fraudulent and abusive billing practices that the reassignment 
rules were designed to prevent. We also stated in the proposed rule 
that the new reassignment exception does not alter an individual's or 
entity's obligations under existing Medicare statutes and regulations 
(for example, the physician self-referral prohibition, the anti-
kickback statute, purchased diagnostic test rules, incident to rules, 
etc.).
    Comment: Several commenters expressed concern over the recent 
growth of so-called pod, salon, turnkey, mini-mall, or condo labs, 
especially since section 952 of the MMA appears to liberalize the 
Medicare reassignment rules.
    As we understand the situation, some entities have created a 
building or a floor of a building that contains a number of cubicles, 
each of which is equipped with a microscope and other supplies that 
enable a pathologist to go to a particular cubicle or pod to analyze 
any tissue sample that is submitted by the group practice that rents 
pod space on a full-time basis. Apparently, some of the owners of these 
anatomical laboratories assert that each pod is a centralized location 
for a laboratory that is owned by a group practice. Other owners assert 
that each pod serves as an offsite office of a pathologist who works 
for a group practice as an independent contractor.
    These entities market their services to specialists in certain 
disciplines, such as gastroenterology, urology, and dermatology, which 
rely on a high

[[Page 66316]]

volume of anatomic pathology services. The commenters stated that these 
lab arrangements are subject to excess, waste, and abuse, including, 
but not limited to: (a) Generation of medically unnecessary biopsies; 
(b) kickbacks; (c) fee-splitting; and, (d) referrals that would 
otherwise be prohibited under the physician self-referral statute.
    The commenters agree with us that safeguards are necessary to 
prevent the increased incidence of fraudulent and abusive billing 
practices resulting from the new reassignment exception for contractual 
arrangements. To reach the goal of closing any loophole for excess, 
waste, and abuse opened by the new independent contractor reassignment 
exception, the commenters provided several suggestions. One commenter 
recommends that we add language to proposed Sec.  424.80(d) that would 
prohibit a physician from making a reassignment to another physician, 
under the independent contractor exception, if the physicians do not 
practice in substantially the same medical specialty. This limitation 
would not apply if the entity accepting the assignment is a bona fide 
multi-specialty physician practice, meaning that it employs (on a W-2 
basis) physicians who regularly practice in two or more specialties of 
medicine.
    The commenters believe that the regulations need to state more 
clearly that all requirements of the purchased diagnostic test rules 
and purchased test interpretation rules need to be met. In other words, 
the commenters want to prevent the new reassignment exception from 
applying to services furnished by independent contractor pathologists.
    These commenters are urging us to review these practices to see if 
they fail to meet existing obligations under the physician self-
referral prohibition or anti-kickback statute. The commenters believe 
that these business arrangements are exploiting the in-office ancillary 
services exception and other exceptions to the physician self-referral 
prohibition.
    Response: We appreciate comments that specify situations where 
fraud and abuse may occur and propose solutions to prevent such 
occurrences. While we decline to incorporate the commenters' suggested 
regulatory revisions at this time, we share the commenters' concerns. 
We will be paying close attention to this issue, and may initiate 
future rulemaking to address arrangements that are fraudulent or 
abusive.
    To respond to commenters' concerns, we are amending the regulations 
governing reassignment at Sec.  424.80(a) to clarify that nothing in 
Sec.  424.80 alters an individual or entity's obligations under other 
Medicare statutes or rules, including, but not limited to, the 
physician self-referral prohibition (section 1877 of the Act), the 
anti-kickback statute (section 1128(B)(b)(1) of the Act), the 
regulations regarding purchased diagnostic tests, and regulations 
regarding services and supplies provided incident to a physician's 
services.
    In response to the concerns expressed by the commenters, we wish to 
further expand on the fact that section 952 of the MMA did not affect 
the obligation of an individual or entity to comply with the physician 
self-referral prohibition (section 1877 of the Act and the 
corresponding regulations). As stated in the proposed rule, ``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), ``we 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 
specified at Sec.  411.351 in the definition of physician in the group 
practice, which contains a premises requirement independent of the 
reassignment rules.
    In addition, the use of independent contractors at off-premises 
locations may impact the ability of a group practice to meet the 
definition of a group practice at Sec.  411.352 for purposes of 
complying with section 1877 of the Act. Accordingly, some group 
practices may need to be careful about the number of physician-patient 
encounters that independent contractors perform off-premises to ensure 
that they meet the 75 percent patient-physician encounters test as set 
forth in Sec.  411.352(h).
    We will continue to monitor compliance with the reassignment rules 
and we will analyze the impact of the physician self-referral 
prohibition on ``pod'' labs. If we determine that changes to the 
physician self-referral prohibition are necessary, these changes will 
be made in a separate rulemaking document.
    Comment: We received a number of comments and recommendations from 
three organizations that utilize the services of independent contractor 
emergency department physicians. One of the three organizations 
represents management companies that employ independent contractor 
emergency department physicians. The commenters believe that the 
changes to the reassignment rules necessitated by section 952 of the 
MMA should be implemented in a manner that does not impose additional 
burdens on the Medicare enrollment process. They believe that 
implementation of the proposed regulations could impede the enrollment 
process. They expressed concern that amendments to current contracts 
might be necessary to incorporate the program integrity safeguards 
included in the proposed regulations. Since they believe requiring 
contract amendments would be burdensome and costly to hospitals, they 
are urging us not to require parties to amend their contracts to 
reflect the program integrity safeguards that we proposed.
    Response: We do not believe that implementation of the proposed 
regulations will impede the enrollment process. Our proposed 
regulations would not require parties to amend their contracts to 
reflect the program integrity safeguards. We plan to include the 
program integrity safeguard requirements on the CMS-855-R enrollment 
form. The program integrity safeguards will apply to arrangements 
entered into pursuant to the new reassignment exception for contractual 
arrangements, regardless of whether the parties reference the 
safeguards in their contracts.
    Comment: Three commenters representing groups that utilize 
independent contractor emergency physicians strongly oppose our 
implementation of the two proposed program integrity safeguard 
requirements: (1) Joint and several liability/responsibility for 
Medicare overpayments; and (2) unrestricted access to the billings for 
services provided by independent contractors. The commenters believe 
that establishing program integrity safeguards is premature and that we 
should first formally assess the need for such safeguards. These 
commenters also ask us to clearly define joint and several liability/
responsibility. They express concern over our attempt to impose joint 
and several liability/responsibility on both the contracting entity and 
practitioner furnishing the services and

[[Page 66317]]

note that the CMS-855-R enrollment form certification holds the 
enrolling provider or supplier responsible for any Medicare 
overpayments. The commenters argue that we should impose these program 
integrity safeguards on employer/employee relationships if we are going 
to impose them on contractual arrangements. The commenters ask how we 
would monitor compliance with joint and several liability/
responsibility. The commenters also have concerns about regulating 
access to claims submitted by an entity for services furnished by an 
independent contractor. In their view, this type of requirement should 
be part of the compliance programs of entities and employers rather 
than mandated as part of the reassignment rules.
    Response: We disagree with the commenters' assertion that it is 
premature to implement the proposed program integrity safeguards. 
Section 952 of the MMA specifically authorizes the Secretary to 
implement program integrity safeguards. Further, in the Conference 
Report to the MMA, the Congress specifically highlighted the two 
program integrity safeguards that we have proposed.
    Our assessment of the need for program integrity safeguards is 
based upon prior experience with certain types of entities and their 
subsidiary billing companies. For example, on April 6, 2000, Lewis 
Morris, Assistant Inspector General for Legal Affairs, Office of 
Inspector General (OIG), U.S. Department of Health and Human Services, 
testified before the House Committee on Commerce, Subcommittee on 
Oversight and Investigations regarding Medicare and third-party billing 
companies. Mr. Morris of the OIG detailed the upcoding activities of 
two firms that provided billing services for entities contracting with 
emergency department physicians. One firm paid $15 million and the 
other paid $15.5 million to settle their respective liabilities. 
Moreover, as we have noted, we have received numerous comments from 
physicians stating that they have been prevented from seeing the 
Medicare remittance notices for services they furnished, on penalty of 
termination.
    In addition, we understand the commenters' concerns that if the 
Agency plans to implement the two proposed program integrity 
safeguards, we should apply these same program integrity safeguards to 
employees, as well as to independent contractors. Joint and several 
responsibility/liability and unrestricted access to billings may or may 
not be appropriate for employees and employers as it is for the parties 
involved in contractual arrangements. CMS will study this issue 
further, and if necessary will address it in a separate rulemaking 
document.
    We use the words responsibility and liability interchangeably, and 
in the context of claims filing and payment, they both have the same 
meaning. We define joint and several liability/responsibility to mean 
that both the person furnishing a service and the entity billing for 
that service (and to which payments have been reassigned) can be held 
liable or responsible for any errors in billing that result in a 
Medicare overpayment, including, but not limited to, upcoding and 
billing for services never rendered.
    We will monitor the program integrity safeguards as we monitor all 
other program integrity requirements. We also believe that entities and 
independent contractors will report violations to us, since both may be 
held responsible for any Medicare overpayments. If an independent 
contractor is refused access to the billings submitted on his or her 
behalf, the independent contractor may report this to the appropriate 
Medicare contractor.
    Comment: An organization representing entities that use independent 
contactor emergency department physicians believes if we retain the 
proposed program integrity requirements, then these requirements should 
be clarified and included in other reassignment exceptions and in other 
Medicare conditions of participation.
    Response: It is our goal to have the program integrity requirements 
identified and included on the appropriate CMS-855-R enrollment form. 
As we have discussed above, while we will study whether it is 
appropriate to extend the program integrity safeguards to employer/
employee relationships, we do not believe it is necessary to include 
the program integrity requirements in other reassignment exceptions (or 
in other Medicare conditions of participation) at this time.
    Comment: Three commenters representing organizations that use 
independent contractor emergency physicians recommend that we revise 
our definition of entity to specifically identify the types of entities 
that are listed in the Conference Report to section 952 of the MMA. 
They believe that our existing definition which defines entity as a 
person, group or facility enrolled in the Medicare program is ambiguous 
and inconsistent with Congressional intent. Therefore, they are 
recommending that we add the language to the definition that specifies 
that an entity includes but is not limited to, a hospital, clinic, 
medical group, a physician practice management organization, or a 
staffing company. One of the commenters opposes stating that entities 
need to be enrolled in Medicare in the definition of entity because the 
commenter believes it is not necessary to include such information in 
the regulations on reassignment. This commenter believes that 
instructions on enrollment should be addressed in an enrollment 
regulation. The commenter also states that our current reassignment 
regulation does not define facility as a hospital or other institution 
enrolled in the Medicare program. These groups believe that their 
proposed definition of entity more accurately reflects the language 
from the Statement of the Managers filed by the MMA Conference 
Committee and is included in the Conference Report (Conference 
Agreement). Finally, these groups do not believe that a definition of 
entity is necessary, since we do not define employer in the 
reassignment regulations definition section.
    Response: We continue to believe that our definition of entity in 
the proposed rule is appropriate. We believe that defining entity as a 
person, group, or facility that is enrolled in Medicare encompasses all 
entities that are allowed to bill and receive payment from Medicare, 
and does not prevent those entities that were specifically identified 
in the Conference Report from benefiting from the new contractual 
arrangement reassignment exception. We will not specifically include a 
staffing company in the definition of entity because a staffing company 
cannot enroll in Medicare as a staffing company. Staffing companies can 
enroll as either a group practice or clinic, depending on how they are 
licensed or allowed to do business in the state where they are located. 
We further believe that a definition of entity is necessary to 
distinguish between entities that are allowed to reassign their right 
to payment and to receive reassigned payments from entities that are 
not allowed to reassign their right to payment or to receive reassigned 
payments (for example, billing agents, entities that provide services 
under arrangements, and substitute physicians, (for example, locum 
tenens physicians or physicians working on a reciprocal basis) all of 
which are not required to enroll in Medicare).
    Comment: Three commenters representing organizations that use 
independent contractor emergency physicians found our use of the term 
supplier confusing when denoting the physician or non-physician 
practitioner

[[Page 66318]]

that contracts with an entity and reassigns his or her right to bill 
and receive payment. Specifically, the commenters found the proposed 
revision to Sec.  424.80(c) (Prohibition on reassignment of claims by 
suppliers) confusing because it refers to a hospital or facility as the 
supplier of services for purposes of the reassignment revision when 
Medicare already has regulations that separately define provider and 
supplier. The commenters recommend that we clarify our intent regarding 
the use of the term supplier.
    Response: In instances of reassignment, the supplier is the person 
furnishing the service and reassigning his or her right to bill and 
receive payment to another entity. This is consistent with our 
definition of supplier in Sec.  400.202. In our proposed revision to 
Sec.  424.80(c), we state that the employer or entity is considered to 
be the supplier of the services for subparts C, D, and E of this part, 
subject to the provisions of paragraph (d) of the section. Once a 
supplier reassigns his or her right to receive Medicare payments, the 
entity receiving the reassigned payments essentially takes the place of 
the supplier. We have revised Sec.  424.80(c) to reflect the new 
contractual arrangement reassignment exception. The existing Sec.  
424.80(c) includes the same formulation and we have simply proposed to 
replace the words ``facility'' and ``system'' with ``entity,'' because 
the new exception for payment to an entity under a contractual 
arrangement now replaces the previous exceptions for payment to a 
facility or health care delivery system.
    Comment: Three commenters that use independent contractor emergency 
physicians expressed concern about our statement in the preamble to the 
proposed rule that the new reassignment exception may create fraud and 
abuse vulnerabilities, which may not become apparent until the program 
has experience with the range of contractual arrangements permitted by 
the new reassignment exception. These groups do not believe that the 
new reassignment exception will result in an increase in violations of 
the types addressed in the preamble to the proposed rule. The groups 
also disagree with our statement in the preamble to the proposed rule 
that contractual arrangements with independent contractor physicians 
may be used to camouflage inappropriate fee-splitting arrangements or 
payment for referrals. These groups state that Medicare does not govern 
fee-splitting arrangements, that policing such arrangements is a matter 
of State law, and that Medicare reassignment policy has no direct 
effect on this issue. They question why we have expressed concern over 
potential violations of the physician self-referral prohibition, 
because section 952 of the MMA does not affect or otherwise change the 
obligation of providers and suppliers to comply with the physician 
self-referral prohibition and its accompanying regulations.
    Response: The Congress originally passed the prohibition on 
reassignment provision because of increasing fraud and abuse in billing 
practices. Since the new reassignment exception has expanded the 
circumstances under which suppliers can reassign their right to receive 
Medicare payments, we are concerned that the potential exists for an 
increased incidence of fraud and abuse, which may not become apparent 
until the program has experience with the range of contractual 
arrangements permitted by the new reassignment exception. Fee-splitting 
arrangements may violate the physician self-referral prohibition and 
the anti-kickback statute. Preventing fraudulent and abusive billing 
practices continues to be the primary purpose of the reassignment 
rules, even as they are amended to reflect changing practices in the 
delivery of health care.
    We agree that section 952 of the MMA does not change the 
obligations of providers and suppliers under the physician self-
referral prohibition, and all other Medicare statutes and regulations. 
We are incorporating this clarification in Sec.  424.80(a).
    Comment: Three organizations that use independent contractor 
emergency physicians raised procedural concerns regarding the timing of 
the final rule, which is effective January 1, 2005. The commenters 
claim that providers and suppliers do not have time to comply with the 
new program integrity safeguards. They are asking us to provide 
providers and suppliers with an additional time frame of at least six 
months for compliance with the program integrity safeguards, if they 
are finalized. They recommend that we make the new safeguards 
applicable to enrollment applications submitted on or after the 
effective date of the final rule.
    Response: We do not believe additional time is necessary for 
compliance with the program integrity safeguards. Providers and 
suppliers will not have to amend contracts to include the proposed 
program integrity requirements. Thus, enrollment applications are not 
affected by this regulation. The program integrity safeguards will be 
effective on the effective date of this final rule and these 
requirements will be applicable to all Medicare providers and suppliers 
affected by the section 952 change to the reassignment rules.
    Comment: One commenter believes that the public comment period for 
this rule was shortened to 50 days instead of the 60-day comment period 
required by statute. The proposed rule was published in the Federal 
Register on August 5, 2004 and the public comment period ended at 5 
p.m. on September 24, 2004.
    Response: While the law requires that we provide a 60-day public 
comment period and that the notice of proposed rulemaking be published 
in the Federal Register, it does not require that the date of Federal 
Register publication be the first day of the comment period. The two 
requirements are independent. We post the proposed rule on our Web site 
on the date of display of the proposed rule at the Office of the 
Federal Register, satisfying the requirement for a 60-day comment 
period. By making the proposed rule available on the CMS Web site (as 
well as at the Office of the Federal Register), we provided the public 
with access to not only the proposed rule, but also to all of the 
supporting files and documents cited in the proposed rule in a manner 
that can be used for analysis. We note that the computer files posted 
on the Web site can be used for independent analysis. Therefore, we 
believe that beginning the comment period for the proposed rule with 
the display date at the Office of the Federal Register, and posting the 
proposed rule and data files on the CMS Web site on the display date, 
fully complies with the statute and provides a far better opportunity 
for the public to have meaningful input than the past practice under 
which the comment period began with the publication date in the Federal 
Register, a week or longer after the display date and no other data in 
any other form was furnished.

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

    In the August 5, 2004 proposed rule, we stated that for dates of 
service beginning on or after January 1, 2004, Medicare would pay for 
IVIG administered in the home. The 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. The 
implementing instructions for this benefit were provided in a 
transmittal released on January 23, 2004. We received several comments 
regarding this new benefit. The comments and our responses are provided 
below.

[[Page 66319]]

    Comment: Several commenters expressed concern regarding the lack of 
coverage for the items and services needed to administer IVIG. These 
commenters urged us to use our authority to pay for the items that are 
necessary for the effective use of IVIG.
    Response: The MMA provided coverage for the approved pool plasma 
derivative for treatment in the home; however, new section 1861(zz) of 
the Act specifically precludes coverage for the items and services 
related to the administration of the derivative.
    Comment: The commenter stated that on January 23, 2004, we released 
a transmittal implementing the new IVIG coverage. The transmittal 
contained the following language: ``for coverage of IVIG under this 
benefit, it is not necessary for the derivative (IVIG) to be 
administered through a piece of durable medical equipment.'' Commenters 
stated that this language has resulted in the denial of coverage of 
IVIG for patients because providers are using the rationale that it is 
medically unnecessary to infuse IVIG through an infusion pump and 
therefore IVIG is medically unnecessary. The commenters recommended 
that we issue a new transmittal stating that IVIG is to be covered even 
when administered through durable medical equipment (DME), as 
determined necessary by a physician.
    Response: It was not our intention to deny any beneficiary the 
coverage of IVIG in the home. It appears that the sentence that 
references the use of DME for the administration of IVIG is both 
confusing and misleading. Therefore, we will issue a new transmittal 
removing the apparent DME restriction.

Result of Evaluation of Comments

    We are finalizing the proposed revisions to Sec.  410.10 without 
alteration.

H. Section 623--Payment for Renal Dialysis Services

    Section 623 of the MMA amended section 1881(b) of the Act and 
directed the Secretary to revise the current renal dialysis composite 
rate payment system. The MMA included several major provisions that 
require the development of revised composite payment rates for ESRD 
facilities.
    The following is a summary of the proposed revisions to the 
composite payments rate methodology implementing provisions in section 
623 of the MMA that are required to be effective January 1, 2005.
     The proposed rule provides for a 1.6 percent increase to 
the current composite payment rates effective January 1, 2005.
     The proposed rule included an add-on to the composite rate 
for the difference between current payments for separately billable 
drugs and payments based on a revised drug pricing methodology using 
acquisition costs. For purposes of this adjustment, in the proposed 
rule, we defined acquisition costs as the ASP minus 3 percent. We 
proposed a single adjustment to the composite payment rates for both 
hospital-based and independent facilities, equal to 11.3 percent.
     In the proposed rule, we discussed the reinstatement of 
the ESRD exceptions process for pediatric facilities as provided in 
section 623(b) of MMA. The statute defines pediatric ESRD facilities as 
renal facilities at least 50 percent of whose patients are under age 
18. Since April 1, 2004, we have accepted ESRD composite rate exception 
requests from ESRD facilities that believe they qualify for exceptions 
as pediatric ESRD facilities.
     Section 1881(b)(12)(D) of the Act, added by section 
623(d)(1) of the MMA gives the Secretary discretionary authority to 
revise the current wage indexes and the urban and rural definitions 
used to develop them. In the proposed rule, we proposed to take no 
action at this time to revise the current composite rate wage indexes. 
Because of the potential payment implications of recently revised 
definitions of urban areas, we believe further study is required.
     The proposed rule described the proposed methodology for a 
case-mix adjustment to a facility's composite payment rate based on the 
statutorily required limited number of patient characteristics. We used 
co-morbidity data for all Medicare ESRD patients obtained from the Form 
CMS-2728, supplemented with co-morbidity information obtained from 
Medicare claims. We measured the degree of the relationship between 
specified co-morbidities and ESRD facility per treatment costs, 
controlling for the effects of other variables, using standard least 
square regression. The source of the per treatment costs was the 
Medicare cost report. The result, after all necessary statistical 
adjustments, was a set of eight case-mix adjustment factors based on 
age, gender, AIDS, and peripheral vascular disease (PVD). Section 
623(d)(1) of the MMA requires that aggregate payments under the case-
mix adjusted composite payment system be budget neutral. Therefore, the 
proposed rule provided an adjustment 0.8390 to be applied to a 
facility's composite payment rate to account for the effects of the 
case-mix adjustments.

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. Section 623(a)(3) of the MMA requires that the composite rates 
in effect on December 31, 2004 be increased by 1.6 percent. The updated 
wage adjusted rates were published in Tables 18 and 19 of the proposed 
notice.
    The tables reflected the updated hospital-based and independent 
facility composite rate of $132.41 and $128.35, respectively, adjusted 
by the current wage index. The rates shown in the tables do not include 
any of the basic case-mix adjustments required under section 623 of the 
MMA.
    Comment: Although there were no specific comments on the 1.6 
percent adjustment, several commenters wanted to emphasize the 
importance of providing an annual adjustment to the composite rate in 
order to recognize the increased costs that face renal dialysis 
facilities. They stated that failure to increase the composite rate on 
a regular basis has caused dialysis providers to suffer a significant 
loss of income from their Medicare reimbursement and that dialysis 
facilities are the only Medicare entities that do not receive a 
statutorily mandated annual increase in their reimbursement rates.
    Response: We do not have the authority to establish an annual 
update to the composite payment rates. Section 4201(a)(2) of Pub. L. 
101-508 effectively froze the methodology for calculation of the rates, 
including the data and definitions used as of January 1, 1991. Since 
that time, the Congress has set the composite payment rate for ESRD 
services furnished to Medicare beneficiaries. As a result, we do not 
have the authority to update the composite payment rate.

B. Composite Rate Adjustments To Account for Changes in Pricing of 
Separately Billable Drugs and Biologicals

    Section 623(d) of MMA provides for an add-on to the composite rate 
for thedifference between current payments for separately billable 
drugs and payments based on a revised drug pricing methodology using 
acquisition costs.
    In the proposed notice we proposed 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 developed the proposed 
drug add-on adjustment using the ASP minus

[[Page 66320]]

3 percent drug prices. As discussed below, the drug add-on adjustment 
for this final rule is based on average acquisition costs for the top 
ten ESRD drugs updated to 2005 and ASP plus 6 percent for the remaining 
separately billable ESRD drugs. See section III.E, Payment for Covered 
Outpatient Drugs and Biologicals, for a discussion of the final payment 
methodology for ESRD separately billable drugs.
    In the proposed notice, we outlined the methodology and data used 
to develop the proposed drug add-on adjustment to the composite rate of 
11.3 percent for both hospital-based and independent ESRD facilities. 
Since the composite rate payment for hospital-based facilities is 
higher than the composite rate for independent facilities, the proposed 
adjustment results in a higher payment rate for hospital-based 
facilities. The 2005 composite rates (including the 1.6 percent 
increase) would be $132.41 for hospital-based facilities and $128.35 
for independent facilities with the hospital-based facilities' rate 
higher by $4.06. We found this result consistent with section 
1881(b)(7) of the Act, which requires that our payment methods 
differentiate between hospital-based facilities and others. We also 
indicated that the proposed methodology for making this drug add-on 
adjustment to the composite rate is designed to ensure that the 
aggregate payments to ESRD facilities for separately billable drugs 
would be budget neutral with what would have been paid absent the MMA 
provisions.
    The proposed rule also discussed an alternative approach that 
produced separate adjustments to the composite rate of 2.7 percent for 
hospital-based and 12.8 percent for independent facilities. In contrast 
to a single add-on, separate add-on adjustments would result in a 
significantly higher composite payment rate for independent facilities 
than hospital-based facilities, of $8.79 more per treatment.
    Comment: We received many comments from independent facilities, 
chain organizations and groups objecting to our proposal to establish a 
single add-on adjustment to the composite payment rate. Several 
commenters expressed concern that since hospital-based facilities are 
paid reasonable cost for their separately billed drugs other than EPO, 
those facilities should receive an adjustment based only on the spread 
related to EPO payments. They stated that our proposal to spread the 
drug savings to all facilities does not comply with the provision in 
the statute that they believe is intended to hold facilities harmless 
with respect to their drug payment profit margins. The commenters also 
contend that since hospital-based facilities already receive about 
$4.00 per treatment more than independent facilities, they should not 
share in the drug add-on adjustment for other than their specific EPO 
usage.
    Response: As we indicated in the proposed rule, we believe that the 
statutory language supports one uniform drug add-on adjustment to 
composite payment rates set forth in section 1881(b)(7) of the Act 
after updating by 1.6 percent. The provision speaks of one ``difference 
between payment amounts'' and ``acquisition costs * * * as determined 
by the Inspector General.'' It is reasonable to infer that the Congress 
intended us to compute one ``difference'' based only on the payment 
amounts under sections 1842(o) and 1881(b)(11) of the Act.
    Although the language of section 1881(b)(7) contemplates 
differential composite rates for hospital-based facilities and 623(d) 
contemplates existing composite rates as the starting point for 
application of the new rate adjustments prescribed under section 
1881(b)(12)(A) of the Act, the MMA language does not suggest that these 
adjustments would be applied differentially across facilities. 
Otherwise, all of the adjustments, including case-mix and budget 
neutrality would have to be developed separately based on facility 
type.
    We note that the amount of the drug add-on has decreased 
significantly from the proposed rule as a result of our revised policy 
of paying for ESRD drugs for 2005. Since the drug payment amounts 
increased, the amount of the drug add-on to the composite rate 
decreased. The resulting drug add-on amount is now 8.7 percent.
    We also note that there is not a significant difference in 
composite rates for independent facilities under single and separate 
add-ons. With a single add-on of 8.7 percent, the 2005 composite rate 
for independent facilities would be $139.52. Under a separate add-on 
approach, the 2005 composite rate for independent facilities would be 
$140.93, a difference of $1.41 or about 1 percent before taking other 
considerations into account. This difference is about 27 percent less 
than the difference based on the approach and figures in the proposed 
rule.
    While a composite rate difference of $1.41 is important, such 
difference does not take into account two other factors: (1) Since 
Medicare's 2005 payments for ESRD drugs will be a weighted average of 
the acquisition costs determined by the Inspector General, the payment 
amounts for the most utilized ESRD drugs (such as EPO) will be 
significantly higher than payment based on ASP-3 percent; and (2) 
Beginning with 2005, Medicare will pay separately for syringes that are 
currently included in the EPO payments.
    With separate add-ons, the composite rate for the independent 
facilities would be $7.33 higher than the composite rate for hospital-
based facilities. However, the composite rate for hospital-based 
facilities would be $10.33 lower under separate add-ons than under a 
single add-on approach. We believe the current difference in composite 
rates where the hospital-based rate is about $4.00 higher than the 
independent facility rate would effectively be preserved with a single 
add-on and significantly reversed with separate add-ons.
    Finally, we note that a key purpose of the MMA legislation was to 
eliminate the cross-subsidization of composite rate payments by drug 
payments. If the composite rate was inadequate before the MMA 
provision, it was inadequate for both hospital-based and independent 
facilities. As such, increasing the composite rate by relatively 
greater amounts for independent facilities than hospital-based 
facilities would place the latter facilities at a competitive 
disadvantage relative to the former facilities.
    Comment: One comment from a drug manufacturer suggested that in 
order to preserve high quality care to ESRD patients and prevent cost 
shifting behavior, we should require a facility to provide the full 
range of separately reimbursable drugs and biologicals in order to 
receive the drug add-on adjustment.
    Response: We do not believe the statute permits imposing such a 
requirement as a condition for receiving the add-on adjustment to the 
composite rate. However, other regulations require that ESRD facilities 
provide appropriate care to each patient based on a plan of care that 
would include the administration of medically necessary drugs as 
prescribed by the patient's dialysis physician.
1. Growth Factors Used To Update Drug Expenditures and Prices
    Comment: One commenter noted that, in the proposed rule, we updated 
the 2004 ASP drug prices to 2005 prices by using the projected annual 
growth factor for National Health Expenditures prescription drugs of 
3.39 percent. This commenter wanted to know why we did not use the 
actual growth factors for separately billable drugs that are furnished 
by ESRD facilities to ESRD

[[Page 66321]]

patients. The commenter states that this factor is currently running 
about 39 percent.
    Response: After consideration of the available price data, as 
discussed in the section on payment for ESRD separately billable drugs, 
we have determined that the Producer Price Index (PPI) for prescription 
preparations is the most appropriate price measure for updating EPO and 
other separately billable drugs from 2003 to 2005. The PPI for 
prescription preparations is released monthly by the Bureau of Labor 
Statistics, and reflects price changes at the wholesale or manufacturer 
stage. By comparison, the Consumer Price Index (CPI) for prescription 
drugs reflects price changes at the retail stage. Because EPO and many 
of the separately billable drugs used by dialysis facilities are 
purchased directly from the manufacturer, the use of a price index that 
measures wholesale rather than retail prices is more appropriate. The 
PPI for prescription drugs is the measure used in the various market 
baskets that update Medicare payments to hospitals, physicians, and 
skilled nursing facilities, and home health agencies. In addition, the 
PPI for prescription drugs was recommended for use in the proposed 
composite rate market basket detailed in the 2003 Report to the 
Congress.
    Based on historical data through the second quarter of 2004, we 
used the Global Insight Inc. forecast of the PPI for prescription drugs 
to determine the update factors for 2004 and 2005. We feel the use of 
an independent forecast, in this case from Global Insight Inc., is 
superior to using the NHE projections for drug prices (which is the CPI 
for prescription drugs) and is consistent with the methodology used in 
projecting market basket increases for Medicare prospective payment 
systems.
    Comment: One comment questioned the 3 percent growth rate that we 
used in the proposed rule to estimate 2005 Medicare AWP payment amounts 
for purposes of calculating the drug add-on amount. Specifically, the 
commenter asked whether the 3 percent figure represented the AWP growth 
trends for all drugs as opposed to the AWP growth trends for only ESRD 
separately billable drugs and biologicals. The commenter also asked for 
clarification of the timeframe used to establish the historical trend.
    Several comments also expressed concern that we used a 10-quarter 
average as an approximation for 2002 expenditures, and as a result, the 
projected 2005 drug expenditures were understated. These comments 
strongly recommended that we establish an accurate baseline using 
actual 2002 expenditures. A study performed for commenters by an 
industry consultant was cited as confirming that our base year estimate 
is materially below actual drug spending computed using CMS's 2002 
Outpatient Five Percent Standard Analytic File (SAF). Commenters were 
also concerned that the drug add-on does not reflect the true 
difference between payments under the current system and acquisition 
costs described by the OIG.
    Response: We have taken all these comments into consideration and 
have re-evaluated our 2005 projection of aggregate ESRD facility drug 
expenditures. We did not use an average over 10 quarters to determine 
aggregate drug payments. The 10 quarters of data were used only to 
establish historical growth trends. However, we determined that our 
estimates of aggregate drug payment amounts were in fact understated 
because they did not include deductibles and coinsurance. Since drug 
payment rates are set at 100 percent of the allowable payment, we 
incorrectly calculated the aggregate drug payment for 2005. We revised 
our calculation to ensure that we capture the allowable payment before 
deductible and coinsurance are removed. In addition, we updated our 
estimates to incorporate the June 2004 update to the 2003 standard 
analytical file. The 3 percent growth represents our best estimate of 
the expected growth rate in AWP prices. In addition, due to numerous 
coding changes for the various ESRD drugs, we were unable to do direct 
comparisons for each of the AWP prices from year-to-year. Therefore, we 
believe the 3 percent inflation factor we used to update the AWP prices 
is appropriate.
    Comment: One comment expressed concern that the projected number of 
dialysis treatments in 2005 would be overstated if home peritoneal 
dialysis (PD) treatments for home patients are included because 
facilities do not bill for non-EPO drugs in that setting.
    Response: Since ESRD facilities also receive composite rate 
payments for their Method I home patients, the drug add-on would also 
apply to composite rate payments for those patients. Therefore, it is 
appropriate for us to count those treatments in projecting the number 
of dialysis treatments for computation of the drug add-on amount. We 
did not, however, count treatments attributable to Method II home 
patients since payment for these patients is made based on reasonable 
charges as opposed to the composite rate.
    Comment: One comment from a patient organization raised concern 
that the add-on provision would remove any incentives the current 
payment policy creates for facilities to provide separately billable 
drugs and biologicals to dialysis patients. This comment suggested that 
we establish new clinical guidelines or indicators to ensure that 
dialysis patients receive necessary drugs and biologicals. This 
commenter also asked whether we have longer term plans to revise 
payment for dialysis treatment and ancillary services.
    Response: We share this commenters concern that changes in payments 
to dialysis facilities could produce perverse incentives for dialysis 
facilities to skimp on care to ESRD patients. In order to ensure that 
patients continue to receive quality care, we are revising the ESRD 
facility conditions for coverage so that they are more patient-centered 
and outcome-oriented. We will publish proposed ESRD conditions by the 
end of 2004. We note that section 623 of MMA also requires us to 
develop a bundled, case-mix adjusted payment system and report to the 
Congress by October 1, 2005. This section also requires the 
establishment of a demonstration to test the revised payment system 
over a 3-year period beginning January 1, 2006.
2. Update Methodology for Drug Add-on Adjustment in 2006
    Comment: Several commenters recommended that we publish the 
methodology that we intend to use to update the drug add-on component 
of the basic case-mix adjusted payment amounts, beginning in 2006, and 
that we provide the opportunity for public comment.
    Response: We did not propose a mechanism for updating the 2006 
payments in this document since this rule addresses payment for 2005. 
It is our intent to publish a proposed rule in mid-2005 to address 
payment changes for 2006. The public will be given an opportunity to 
comment on those proposals at that time.
3. Computation of Final Drug Add-On Adjustment to the Composite Payment 
Rate
    To develop the final drug add-on adjustment we used historical 
total aggregate payments for separately billed ESRD drugs for half of 
2000 and all of 2001, 2002 and 2003. For EPO, these payments were 
broken down according to type of ESRD facility (hospital-based versus 
independent). We also used the 2003 data on dialysis treatments 
performed by these two types of facilities over the same period.

[[Page 66322]]

I. 2005 Average Acquisition Payment (AAP) Amounts

    The OIG report contained 2003 average acquisition costs for the top 
ten drugs supplied by the four largest dialysis chain organizations and 
by a sample of those facilities not managed by the four largest chain 
organizations. According to the OIG report, these ten drugs accounted 
for about 98 percent of total expenditures for separately billed drugs 
furnished by ESRD facilities. The report also indicated that payment to 
the four largest dialysis chains accounted for 73 percent of Medicare 
drug reimbursement in 2002. Therefore, we weighted the average 
acquisition costs using a 73-27 split. As discussed earlier, we then 
updated the 2003 weighted average acquisition costs to arrive at the 
2005 AAP amounts by using the PPI for prescription drugs. These factors 
were 4.81 percent and 3.72 percent for 2004 and 2005, respectively.
[GRAPHIC] [TIFF OMITTED] TR15NO04.505

II. Estimated 2005 Medicare Payment Amounts Based on 95 Percent of AWP

    We estimated what Medicare would pay for ESRD drugs in 2005 if the 
MMA had not been enacted. We adjusted the first quarter 2004 Medicare 
payment amounts (95 percent of AWP), based on the prices from the 
January 2004 Single Drug Pricer, for drugs other than EPO, to estimate 
2005 prices by using an estimated AWP growth of 3 percent. As discussed 
earlier, these growth factors are based on historical trends of AWP 
pricing over years. We did not increase the price for Epogen since 
payment was maintained at $10.00 per thousand units prior to MMA.
[GRAPHIC] [TIFF OMITTED] TR15NO04.506


[[Page 66323]]



III. Dialysis Treatments

    We updated the number of dialysis treatments based on 2003 data 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 will be due to enrollment. In 2005, we project there will be 
a total of 34.8 million treatments performed.

IV. Estimated Drug Spending

    We updated the total aggregate 2003 Epogen drug spending for 
hospital-based and independent facilities using historical trend 
factors. For 2004 and 2005, we increased the 2003 spending levels by 
trend factors of 1.0 percent for hospital-based facilities and by 10.0 
percent for independent facilities based on historical growth from 2000 
to 2003.
    We also updated the aggregate AWP based spending for separately 
billed drugs, other than EPO, for independent facilities by using the 
10 percent growth factor for Epogen. Since aggregate spending in this 
category show extremely varied growth in recent history, we could not 
establish a clear growth trend. For this reason we decided to apply the 
Epogen growth rate to the other separately billed drugs. Given the 
problems establishing growth trends for the other drugs, plus the fact 
the expenditures for Epogen account for about 70 percent of the total 
spending for the top ten ESRD drugs, we believe this approach to 
updating all of the separately billed drugs is appropriate.
    Additionally, we deducted 50 cents for each administration of 
Epogen from the total Epogen spending for both hospital based and 
independent facilities, to account for payment for syringes that is 
currently included in the EPO payments. Payment for syringes used in 
administering EPO will be made separately beginning January 1, 2005. In 
2005, we estimate that the total spending for syringes associated with 
the administration of Epogen will amount to $1.6 million for hospital-
based facilities and $27 million for independent facilities. For 2005, 
we estimate that the total spending for Epogen provided in hospital-
based facilities will be $210 million, and $2.913 billion for drugs 
provided in independent facilities ($2.003 billion for Epogen and $910 
million for other drugs).

V. Add-On Calculation and Budget Neutrality

    For each of the ten drugs in the previous tables, we calculated the 
percent by which 2005 AAP amounts are projected to be different from 
the payment amounts under the pre-MMA system. For Epogen, this amount 
is 2 percent. We applied this 2 percent figure to the total aggregate 
drug payments for Epogen in hospital-based facilities, resulting in a 
difference of $5 million.
    Since the top 10 ESRD drugs will be paid at 2005 AAP amounts and 
the remainder will be paid at ASP plus six percent, we then calculated 
a weighted average of the percentages by which AAP amounts would be 
below current Medicare prices, for the top 10 drugs, and the percentage 
by which ASP plus 6 percent would be below current Medicare payment 
amounts. For other than the top ten drugs, we do not have detailed data 
on expenditures for drugs billed by ESRD facilities. Therefore, we 
computed the percentage by which ASP plus 6 percent is below the 
estimated 2005 pre-MMA payment amounts for those drugs, using the 
average of the comparable ASP prices for the top 10 ESRD drugs. This 
procedure resulted in a weighted average of 13 percent by which the 
overall revised 2005 drug payment amounts applicable to independent 
facilities is projected to be less than the 2005 estimated pre-MMA 
system (that is, 95 percent of AWP). We then applied the 13 percent 
weighted average to total aggregate drug spending projections for 
independent facilities, producing a projected difference of $385 
million.
    Combining the 2005 estimates of $5 million and $385 million, for a 
total of $390 million and then distributing this over a total projected 
34.8 million treatments would result in an add-on to the per treatment 
composite rate of 8.7 percent. We estimate that an 8.7 percent 
adjustment to the ESRD composite payment rate would be needed to 
achieve budget neutrality with respect to drug expenditures for ESRD 
facilities.

A. Patient Characteristic Adjustments

    As explained in the proposed rule, the current ESRD composite 
payment rates are not adjusted for variation in patient characteristics 
or case-mix. Section 623(d)(1) of the MMA added section 1881(b)(12)(A) 
of the Act to require that the outpatient dialysis services included in 
the composite rate be case-mix adjusted. Specifically, the statute 
requires us to establish a basic case-mix adjusted prospective payment 
system for dialysis services. Also, the statute requires adjustments 
under this system for a limited number of patient characteristics. In 
the proposed notice, we described the development of the methodology 
for the proposed patient characteristic case-mix adjusters required 
under the MMA.
    In summary, we proposed to use a limited number of patient 
characteristics that explain variation in reported costs for composite 
rate services, consistent with the legislative requirement. The 
proposed adjustment factors are as follows:

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[GRAPHIC] [TIFF OMITTED] TR15NO04.507

    Although the magnitude of some of the patient-specific case-mix 
adjustments appears to be significant, facility level variation in 
case-mix is limited because of the overall similarity of the 
distribution of patients among the eight case-mix classification 
categories across facility classification groups.
    We received a significant number of comments regarding the case-mix 
adjustment factors, which are summarized in this section with our 
corresponding responses.
1. Sample Data Used To Develop the Basic Case-Mix System
    Comment: Comments regarding the sample or universe used to derive 
the proposed basic case-mix adjustments in the proposed rule expressed 
concerns about the size of the sample, the number of hospitals and 
freestanding facilities included, as well as the number of facilities 
excluded from the data.
    Response: We used the database established by our contractor to 
develop the basic case-mix system in the proposed rule. Facility cost 
report data were matched to the corresponding facility billing data to 
insure that the sample reflected the most valid and reliable data 
available. The specific methodology used to develop the database is 
discussed in Kidney Epidemiology and Cost Center's (KECC's) Phase I 
report. The Phase I report entitled: ``An Expanded Medicare Outpatient 
End Stage Renal Disease PPS--Phase I'' is available on the University 
of Michigan Web site: http://www.sph.umich.edu/kecc. The contractor has 

been updating the data files for subsequent phases of their research 
and is beginning to analyze these data for the bundled prospective 
payment system. The data used for the basic case-mix proposed system 
were also assessed in terms of consistency. Data from 2000, 2001, and 
2002 were examined separately as well as combined to determine if there 
were consistent trends over the 3-year period. The data were updated to 
include the latest 2002 data that was available as of September 2004. 
The updated data reflect an increase of approximately 10 percent in the 
number of facilities represented in the database.
    Comment: Several comments expressed concerns regarding the 
timeliness of the data used to develop the proposed case-mix measures. 
These concerns focused on the availability of cost reports for 2002. In 
the proposed notice we acknowledged we were delayed in obtaining cost 
reports for 2002 and that the final rule would reflect the most recent 
data on the number of cost reports available.
    Response: Table 12 indicates the number of dialysis facilities with 
at least one cost report for 2000 to 2002. This table also reflects the 
availability of the most recent cost reports data for 2002 and reflects 
an increase from the proposed rule of an additional 564 cost reports 
for the independent facilities in 2002.
[GRAPHIC] [TIFF OMITTED] TR15NO04.508

    The availability of cost reporting data may be delayed because of a 
number of factors including late submissions by facilities and 
necessary reconciliation and verification of data by fiscal 
intermediaries prior to submission to our data systems. The comment on 
delays and availability of data is also related to concerns expressed 
by other comments regarding the reporting of co