FR Doc 05-15370

[Federal Register: August 8, 2005 (Volume 70, Number 151)]
[Proposed Rules]
[Page 45763-46064]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08au05-36]

[[Page 45763]]

-----------------------------------------------------------------------

Part II

Department of Health and Human Services

-----------------------------------------------------------------------

Centers for Medicare & Medicaid Services

-----------------------------------------------------------------------

42 CFR Part 405, et al.

Medicare Program; Revisions to Payment Policies Under the Physician Fee
Schedule for Calendar Year 2006; Proposed Rule

[[Page 45764]]

-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 405, 410, 411, 413, 414, and 426

[CMS-1502-P]
RIN 0938-AN84

Medicare Program; Revisions to Payment Policies Under the
Physician Fee Schedule for Calendar Year 2006

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

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This proposed rule would refine the resource-based practice
expense relative value units (PE RVUs) and propose changes to payment
based on supplemental survey data for practice expense and revisions to
our methodology for calculating practice expense RVUs, as well as make
other proposed changes to Medicare Part B payment policy. We are also
proposing policy changes related to revisions to malpractice RVUs, in
addition to revising the list of telehealth services. In this proposed
rule, we also discuss multiple procedure payment reduction for
diagnostic imaging, and several coding issues.
We are proposing these changes to ensure that our payment systems
are updated to reflect changes in medical practice and the relative
value of services. This proposed rule also discusses geographic
locality changes; payment for covered outpatient drugs and biologicals;
supplemental payments to federally qualified health centers (FQHCs);
payment for renal dialysis services; the national coverage decision
(NCD) process; coverage of screening for glaucoma; private contracts;
and physician referrals for nuclear medicine services and supplies to
health care entities with which they have financial relationships.
In addition, we include discussions on payment for teaching
anesthesiologists, the therapy cap, the chiropractic demonstration and
the Sustainable Growth Rate (SGR).

DATES: Comment Date: Comments will be considered if we receive them at
one of the addresses provided below, no later than 5 p.m. on September
30, 2005.

ADDRESSES: In commenting, please refer to file code CMS-1502-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of three ways (no duplicates,
please):
1. Electronically. You may submit electronic comments on specific
issues in this regulation to http://www.cms.hhs.gov/regulations/ecomments.
(Attachments should be in Microsoft Word, WordPerfect, or

Excel; however, we prefer Microsoft Word.)
2. By mail. You may mail written comments (one original and two
copies) to the following address ONLY: Centers for Medicare & Medicaid
Services, Department of Health and Human Services, Attention: CMS-1502-
P, P.O. Box 8017, Baltimore, MD 21244-8017.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send 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-1502-P, Mail Stop C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments (one original and two copies) before the
close of the comment period to one of the following addresses. If you
intend to deliver your comments to the Baltimore address, please call
telephone number (410) 786-7197 in advance to schedule your arrival
with one of our staff members. Room 445-G, Hubert H. Humphrey Building,
200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security
Boulevard, Baltimore, MD 21244-1850.
(Because access to the interior of the HHH Building is not readily
available to persons without Federal Government identification,
commenters are encouraged to leave their comments in the CMS drop slots
located in the main lobby of the building. A stamp-in clock is
available for persons wishing to retain a proof of filing by stamping
in and retaining an extra copy of the comments being filed.)
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
Submission of comments on paperwork requirements. You may submit
comments on this document's paperwork requirements by mailing your
comments to the addresses provided at the end of the ``Collection of
Information Requirements'' section in this document.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:
Pam West (410) 786-2302 (for issues related to practice expense).
Rick Ensor (410) 786-5617 (for issues related to the non-physician
workpool and supplemental survey data).
Stephanie Monroe (410) 786-6864 (for issues related to the
geographic practice cost index).
Craig Dobyski (410) 786-4584 (for issues related to list of
telehealth services).
Ken Marsalek (410) 786-4502 (for issues related to multiple
procedure reduction for diagnostic imaging services and payment for
teaching anesthesiologists).
Henry Richter (410) 786-4562 (for issues related to payments for
end stage renal disease facilities).
Angela Mason (410) 786-7452 or Catherine Jansto (410) 786-7762 (for
issues related to payment for covered outpatient drugs and
biologicals).
Fred Grabau (410) 786-0206 (for issues related to private contracts
and opt out provision).
David Worgo (410) 786-5919 (for issues related to Federally
Qualified Health Centers).
Vadim Lubarsky (410) 786-0840 (for issues related National Coverage
Decision timeframes).
Bill Larson (410) 786-7176 (for issues related to coverage of
screening for glaucoma).
Diane Milstead (410) 786-3355 or Gaysha Brooks (410) 786-9649 (for
all other issues).

SUPPLEMENTARY INFORMATION:
Submitting Comments: We welcome comments from the public on all
issues set forth in this rule to assist us in fully considering issues
and developing policies. You can assist us by referencing the file code
CMS-1502-P and the specific ``issue identifier'' that precedes the
section on which you choose to comment.
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. CMS posts all electronic
comments received before the close of the comment period on its public
website as soon as possible after they have been received. Hard copy
comments received timely will be available for public inspection as
they are received, 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

[[Page 45765]]

through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an
appointment to view public comments, phone 1-800-743-3951.
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
areas near the top of the page. Select ``physicians'' from the drop-
down menu.
3. Under ``Billing/Payment'' 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 VI.

Table of Contents

I. Background
A. Introduction
B. Development of the Relative Value System
C. Components of the Fee Schedule Payment Amounts
D. Most Recent Changes to the Fee Schedule
II. Provisions of the Proposed Rule
A. Resource-Based Practice Expense RVUs
1. Current Methodology
2. Practice Expense Proposals for Calendar Year 2006
B. Geographic Practice Cost Indices
C. Malpractice Relative Value Units (RVUs)
D. Medicare Telehealth Services
E. Contractor Pricing of Unlisted Therapy Modalities and
Procedures
F. Payment for Teaching Anesthesiologists
G. End Stage Renal Disease (ESRD) Related Provisions
1. Revised Pricing Methodology for Separately Billable Drugs and
Biologicals Furnished by ESRD Facilities.
2. Adjustment to Account for Changes in the Pricing of
Separately Billable Drugs and Biologicals and the Estimated Increase
in Expenditures for Drugs and Biologicals
3. Proposed Revisions to Geographic Designations and Wage
Indexes Applied to the End Stage Renal Disease Composite Payment
Rate Wage Index
4. Proposed Revisions to Sec. 413.170 (Scope) and Sec. 413.174
(Prospective rates for hospital-based and independent ESRD
facilities)
5. Proposed Revisions to the Composite Payment Rate Exceptions
Process
H. Payment for Covered Outpatient Drugs and Biologicals
I. Private Contracts and Opt-out Provision
J. Multiple Procedure Reduction for Diagnostic Imaging
K. Therapy Cap
L. Chiropractic Services Demonstration
M. Supplemental Payments to Federally Qualified Health Centers
(FQHCs) Subcontracting with Medicare Advantage Plans
N. National Coverage Decisions Timeframes
O. Coverage of Screening for Glaucoma
P. Physician Referrals for Nuclear Medicine Services and
Suppliers to Health Care Entities with Which They Have Financial
Relationships
Q. Sustainable Growth Rate
III. Collection of Information Requirements
IV. Response to Comments
V. Regulatory Impact Analysis

Regulation Text
Addendum A--Explanation and Use of Addendum B
Addendum B--2006 Relative Value Units and Related Information Used
in Determining Medicare Payments for 2006
Addendum C--Codes for Which we Received Practice Expense Review
Committee (PERC) Recommendations on Practice Expense Direct Cost
Inputs.
Addendum D--2006 Geographic Practice Cost Indices By Medicare
Carrier and Locality
Addendum E--Proposed 2006 Geographic Adjustment Factors (GAFs)
Addendum F--ESRD Facilities Metropolitan Statistical Areas (MSA)/
Core-Based Statistical Areas (CBSA) Crosswalk
Addendum G--List of CPT/HCPCS Codes Used to Describe Nuclear
Medicine Designated Health Services Under Section 1877 of the Social
Security Act

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

AADA American Academy of Dermatology Association
AAH American Association of Homecare
ACC American College of Cardiology
ACG American College of Gastroenterology
ACR American College of Radiology
AFROC Association of Freestanding Radiation Oncology Centers
AGA American Gastroenterological Association
AMA American Medical Association
AMP Average manufacturer price
ASA American Society of Anesthesiologists
ASGE American Society of Gastrointestinal Endoscopy
ASP Average sales price
ASTRO American Society for Therapeutic Radiation Oncology
ATA American Telemedicine Association
AUA American Urological Association
AWP Average wholesale price
BBA Balanced Budget Act of 1997
BBRA Balanced Budget Refinement Act of 1999
BES (Bureau of the Census') Business Expenditure Survey
BIPA Benefits Improvement and Protection Act of 2000
BLS Bureau of Labor Statistics
BMI Body mass index
BNF Budget neutrality factor
BSA Body surface area
CAP College of American Pathologists
CBSA Core-Based Statistical Area
CF Conversion factor
CFR Code of Federal Regulations
CMA California Medical Association
CMS Centers for Medicare & Medicaid Services
CNS Clinical nurse specialist
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)
CRNA Certified Registered Nurse Anesthetist
CT Computed tomography
CTA Computed tomographic angiography
CY Calendar year
DHS Designated health services
DME Durable medical equipment
DMERC Durable Medical Equipment Regional Carrier
DSMT Diabetes outpatient self-management training services
E&M Evaluation and management
EPO Erythopoeitin
ESRD End stage renal disease
FAX Facsimile
FI Fiscal intermediary
FQHC Federally qualified healthcare center
FR Federal Register
GAF Geographic adjustment factor
GAO General Accounting Office
GPCI Geographic practice cost index
HCPAC Health Care Professional Advisory Committee
HCPCS Healthcare Common Procedure Coding System
HHA Home health agency
HHS (Department of) Health and Human Services
HOCM High Osmolar Contrast Media
HPSA Health professional shortage area
HRSA Health Resources Services Administration (HHS)
IDTFs Independent diagnostic testing facilities
IPF Inpatient psychiatric facility
IPPS Inpatient prospective payment system
IRF Inpatient rehabilitation facility
ISO Insurance Services Office
IVIG Intravenous immune globulin
JCAAI Joint Council of Allergy, Asthma, and Immunology
JUA Joint underwriting association
LCD Local coverage determination
LTCH Long-term care hospital
LOCM Low Osmolar Contrast Media
MA Medicare Advantage
MCAC Medicare Coverage Advisory Committee
MCG Medical College of Georgia
MedPAC Medicare Payment Advisory Commission
MEI Medicare Economic Index

[[Page 45766]]

MMA Medicare Prescription Drug, Improvement, and Modernization Act
of 2003
MNT Medical nutrition therapy
MRA Magnetic resonance angiography
MRI Magnetic resonance imaging
MSA Metropolitan statistical area
NCD National coverage determination
NCQDIS National Coalition of Quality Diagnostic Imaging Services
NDC National drug code
NECMA New England County Metropolitan Area
NECTA New England City and Town Area
NP Nurse practitioner
NPP Nonphysician practitioners
OBRA Omnibus Budget Reconciliation Act
OIG Office of Inspector General
OMB Office of Management and Budget
OPPS Outpatient prospective payment system
PA Physician assistant
PC Professional component
PE Practice Expense
PEAC Practice Expense Advisory Committee
PERC Practice Expense Review Committee
PET Positron emission tomography
PFS Physician Fee Schedule
PLI Professional liability insurance
PPI Producer price index
PPO Preferred provider organization
PPS Prospective payment system
PRA Paperwork Reduction Act
PT Physical therapy
RFA Regulatory Flexibility Act
RIA Regulatory impact analysis
RN Registered nurse
RUC (AMA's Specialty Society) Relative (Value) Update Committee
RVU Relative value unit
SGR Sustainable growth rate
SMS (AMA's) Socioeconomic Monitoring System
SNF Skilled nursing facility
SNM Society for Nuclear Medicine
TA Technology assessment
TC Technical component
tPA Tissue-type plasminogen activator
UAF Update adjustment factor
WAC Wholesale acquisition cost
WAMP Widely available market price

I. Background

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

A. Introduction

Since January 1, 1992, Medicare has paid for physicians' services
under section 1848 of the Social Security Act (the Act), ``Payment for
Physicians' Services.'' The Act requires that payments under the
physician fee schedule (PFS) be based on national uniform relative
value units (RVUs) based on the resources used in furnishing a service.
Section 1848(c) of the Act requires that national RVUs be established
for physician work, practice expense (PE), and malpractice expense.
Prior to the establishment of the resource-based relative value system,
Medicare payment for physicians' services was based on reasonable
charges.

B. Development of the Relative Value System

1. Work RVUs
The concepts and methodology underlying the PFS were enacted as
part of the Omnibus Budget Reconciliation Act (OBRA) of 1989, Pub. L.
101-239, and OBRA 1990, (Pub. L. 101-508). The final rule, published
November 25, 1991 (56 FR 59502), set forth the fee schedule for payment
for physicians' services beginning January 1, 1992. Initially, only the
physician work RVUs were resource-based, and the PE and malpractice
RVUs were based on average allowable charges.
The physician 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 physician work RVUs for most codes
in a cooperative agreement with the Department of Health and Human
Services. In constructing the code-specific vignettes for the original
physician work RVUs, Harvard worked with panels of experts, both inside
and outside the government and obtained input from numerous physician
specialty groups.
Section 1848(b)(2)(A) of the Act specifies that the RVUs for
radiology services are based on relative value scale we adopted under
section 1834(b)(1)(A) of the Act, (the American College of Radiology
(ACR) relative value scale), which we integrated into the overall PFS.
Section 1848(b)(2)(B) of the Act specifies that the RVUs for anesthesia
services are based on RVUs from a uniform relative value guide. We
established a separate conversion factor (CF) for anesthesia services,
and we continue to utilize time units as a factor in determining
payment for these services. As a result, there is a separate payment
methodology for anesthesia services.
We establish physician work RVUs for new and revised codes based on
recommendations received from the American Medical Association's (AMA)
Specialty Society Relative Value Update Committee (RUC).
2. Practice Expense Relative Value Units (PE RVUs)
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 Act and required us to develop resource-based
PE RVUs for each physician's service beginning in 1998. We were to
consider general categories of expenses (such as office rent and wages
of personnel, but excluding malpractice expenses) comprising practice
expenses.
Section 4505(a) of the Balanced Budget Act of 1997 (BBA) (Pub. L.
105-33), amended section 1848(c)(2)(C)(ii) of the Act to delay
implementation of the resource-based PE RVU system until January 1,
1999. In addition, section 4505(b) of the BBA provided for a 4-year
transition period from charge-based PE RVUs to resource-based RVUs.
We established the resource-based PE RVUs for each physician's
service in a final rule, published November 2, 1998 (63 FR 58814),
effective for services furnished in 1999. Based on the requirement to
transition to a resource-based system for PE over a 4-year period,
resource-based PE RVUs did not become fully effective until 2002.
This resource-based system was based on two significant sources of
actual PE data: The Clinical Practice Expert Panel (CPEP) data and the
AMA's Socioeconomic Monitoring System (SMS) data. The CPEP data were
collected from panels of physicians, practice administrators, and
nonphysicians (for example, registered nurses) nominated by physician
specialty societies and other groups. The CPEP panels identified the
direct inputs required for each physician's 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.
Separate PE RVUs are established for procedures that can be
performed in both a nonfacility setting, such as a physician's office,
and a facility setting, such as a hospital outpatient department. The
difference between the facility and nonfacility RVUs reflects the fact
that a facility receives separate payment from Medicare for its costs
of providing the service, apart from payment under the PFS. The
nonfacility RVUs reflect all of the direct and indirect practice
expenses of providing a particular service.
Section 212 of the Balanced Budget Refinement Act of 1999 (BBRA)
(Pub. L. 106-113) directed the Secretary 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 to supplement the data we normally collect
in determining the PE component. On May 3, 2000, we

[[Page 45767]]

published the interim final rule (65 FR 25664) that set forth the
criteria for the submission of these supplemental PE survey data. The
criteria were modified in response to comments received, and published
in the Federal Register (65 FR 65376) as part of a November 1, 2000
final rule. The PFS final rules published in 2001 and 2003,
respectively, (66 FR 55246 and 68 FR 63196) extended the period during
which we would accept these supplemental data.
3. Resource-Based Malpractice RVUs
Section 4505(f) of the BBA amended section 1848(c) of the Act to
require us to implement resource-based malpractice RVUs for services
furnished on or after 2000. The resource-based malpractice RVUs were
implemented in the PFS final rule published November 2, 1999 (64 FR
59380). The malpractice RVUs were based on malpractice insurance
premium data collected from commercial and physician-owned insurers
from all the States, the District of Columbia, and Puerto Rico.
4. Refinements to the RVUs
Section 1848(c)(2)(B)(i) of the Act requires that we review all
RVUs no less often than every five years. The first 5-year review of
the physician work RVUs went into effect in 1997, published on November
22, 1996 (61 FR 59489). The second 5-year review went into effect in
2002, published on November 1, 2001 (66 FR 55246). The next scheduled
5-year review is scheduled to go into effect in 2007.
In 1999, the AMA's RUC established the Practice Expense Advisory
Committee (PEAC) for the purpose of refining the direct PE inputs.
Through March of 2004, the PEAC provided recommendations to CMS for
over 7,600 codes (all but a few hundred of the codes currently listed
in the AMA's Current Procedural Terminology (CPT) codes).
In the November 15, 2004, PFS final rule (69 FR 66236), we
implemented the first 5-year review of the malpractice RVUs (69 FR
66263).
5. Adjustments to RVUs are Budget Neutral
Section 1848(c)(2)(B)(ii)(II) of the Act provides that adjustments
in RVUs for a year may not cause total PFS payments to differ by more
than $20 million from what they would have been if the adjustments were
not made. In accordance with section 1848(c)(2)(B)(ii)(II) of the Act,
if adjustments to RVUs cause expenditures to change by more than $20
million, we make adjustments to ensure that expenditures do not
increase or decrease by more than $20 million.

C. Components of the Fee Schedule Payment Amounts

To calculate the payment for every physician service, the
components of the fee schedule (physician work, PE, and malpractice
RVUs) are adjusted by a geographic practice cost index (GPCI). The
GPCIs reflect the relative costs of physician work, practice expenses,
and malpractice insurance in an area compared to the national average
costs for each component.
Payments are converted to dollar amounts through the application of
a CF, which is calculated by the Office of the Actuary and is updated
annually for inflation.
The general formula for calculating the Medicare fee schedule
amount for a given service and fee schedule area can be expressed as:
Payment = [(RVU work x GPCI work) + (RVU PE x GPCI PE) + (RVU
malpractice x GPCI malpractice)] x CF.

D. Most Recent Changes to the Fee Schedule

In the November 15, 2004 PFS final rule (69 FR 66236), we refined
the resource-based PE RVUs and made other changes to Medicare Part B
payment policy. These policy changes included--
Supplemental survey data for PE;
Updated GPCIs for physician work and PE;
Updated malpractice RVUs;
Revised requirements for supervision of therapy
assistants;
Revised payment rules for low osmolar contrast media;
Payment policies for physicians and practitioners managing
dialysis patients;
Clarification of care plan oversight CPO) requirements;
Requirements for supervision of diagnostic psychological
testing services;
Clarifications to the policies affecting therapy services
provided incident to a physician's service;
Requirements for assignment of Medicare claims;
Additions to the list of telehealth services;
Changes to payments for drug administration services; and
Several coding issues.
The November 15, 2004, final rule also addressed the following
provisions of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) (Pub. L. 108-173):
Coverage of an initial preventive physical examination.
Coverage of cardiovascular screening blood tests.
Coverage of diabetes screening tests.
Incentive payment improvements for physicians in physician
shortage areas.
Changes to payment for covered outpatient drugs and
biologicals and drug administration services.
Changes to 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.
Coverage of 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.
Payment for diagnostic mammograms.
Coverage of religious nonmedical health care institution
items and services to the beneficiary's home.
In addition, the November 15, 2004 PFS final rule finalized the
calendar year (CY) 2004 interim RVUs for new and revised codes in
effect during CY 2004 and issued interim RVUs for new and revised
procedure codes for CY 2005; updated the codes subject to the physician
self-referral prohibition; discussed payment for set-up of portable x-
ray equipment; discussed the third 5-year refinement of work RVUs; and
solicited comments on potentially misvalued work RVUs.
In accordance with section 1848(d)(1)(E) of the Act, we also
announced that the PFS update for CY 2005 would be 1.5 percent; the
initial estimate for the sustainable growth rate for CY 2005 is 4.3;
and the CF for CY 2005 is $37.8975.

II. Provisions of the Proposed Rule

This proposed rule would affect the regulations set forth at Part
405, Federal Health Insurance for the Aged and Disabled; Part 410,
Supplementary Medical Insurance (SMI) Benefits; Part 411, Exclusions
from Medicare and Limitations on Medicare Payment; Part 413, Principles
of Reasonable Cost Reimbursement, Payment for End-Stage Renal Disease
Services, Prospectively Determined Payment Rates for Skilled Nursing
Facilities; 414, Payment for Part B Medical and Other Health Services;
Part 426, Review of National Coverage Determinations and Local Coverage
Determinations.

[[Page 45768]]

A. Resource-Based Practice Expense (PE) RVUs

Based on section 1848(c)(1)(B) of the Act practice expenses are the
portion of the resources used in furnishing the service that reflects
the general categories of physician and practitioner expenses (such as
office rent and wages of personnel, but excluding malpractice
expenses).
Section 121 of the Social Security 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 PE RVUs for each
physician's service. Up until this point, physicians' practice expenses
were based on historical allowed charges. This legislation stated that
the revised PE methodology must consider the staff, equipment, and
supplies used in the provision of various medical and surgical services
in various settings beginning in 1998. The Secretary has interpreted
this to mean that Medicare payments for each service would be based on
the relative PE resources typically involved with performing the
service.
The initial implementation of resource-based PE RVUs was delayed
until January 1, 1999, by section 4505(a) of the BBA 1997. In addition,
section 4505(b) of the BBA 1997 required the new payment methodology be
phased-in over 4 years, effective for services furnished in CY 1999,
and fully effective in CY 2002. The first step toward implementation
called for by the statute was to adjust the PE values for certain
services for CY 1998. Section 4505(d) of BBA 1997 required that, in
developing the resource-based PE RVUs, the Secretary must:
Use, to the maximum extent possible, generally accepted
cost accounting principles that recognize all staff, equipment,
supplies, and expenses, not solely those that can be linked to specific
procedures.
Develop a refinement method to be used during the
transition.
Consider, in the course of notice and comment rulemaking,
impact projections that compare new proposed payment amounts to data on
actual physician PEs.
Beginning in CY 1999, Medicare began the four year transition to
resource-based PE RVUs. In CY 2002, the resource-based PE RVUs were
fully transitioned.
1. Current Methodology
The following sections discuss the current PE methodology.
a. Data Sources
There are two primary data sources used to calculate PEs. The
American Medical Association's (AMA) Socioeconomic Monitoring System
(SMS) survey data are used to develop the PEs per hour for each
specialty. The second source of data used to calculate PEs was
originally developed by the Clinical Practice Expert Panels (CPEP). The
CPEP data include the supplies, equipment and staff times specific to
each procedure.
The AMA developed the SMS survey in 1981 and discontinued it in
1999. Beginning in 2002, we incorporated the 1999 SMS survey data into
our calculation of the PE RVUs, using a 5-year average of SMS survey
data. (See Revisions to Payment Policies and Five-Year Review of and
Adjustments to the Relative Value Units Under the Physician Fee
Schedule for Calendar Year 2002 final rule, published November 1, 2001
(66 FR 55246).) The SMS PE survey data are adjusted to a common year,
1995. The SMS data provide the following six categories of PE costs:
Clinical payroll expenses, which are payroll expenses
(including fringe benefits) for nonphysician personnel.
Administrative payroll expenses, which are payroll
expenses (including fringe benefits) for nonphysician personnel
involved in administrative, secretarial or clerical activities.
Office expenses, which include expenses for rent, mortgage
interest, depreciation on medical buildings, utilities and telephones.
Medical material and supply expenses, which include
expenses for drugs, x-ray films, and disposable medical products.
Medical equipment expenses, which include expenses
depreciation, leases, and rent of medical equipment used in the
diagnosis or treatment of patients.
All other expenses, which include expenses for legal
services, accounting, office management, professional association
memberships, and any professional expenses not mentioned above.
In accordance with section 212 of the BBRA, we established a
process to supplement the SMS data for a specialty with data collected
by entities and organizations other than the AMA (that is, the
specialty itself). (See the Criteria for Submitting Supplemental
Practice Expense Survey Data interim final rule with comment period,
published on May 3, 2000 (65 FR 25664).) Originally, the deadline to
submit supplementary survey data was through August 1, 2001. This
deadline was extended in the November 1, 2001 final rule through August
1, 2003. (See the Revisions to Payment Policies and Five-Year Review of
and Adjustments to the Relative Value Units Under the Physician Fee
Schedule for Calendar Year 2002 final rule, published on November 1,
2001 (66 FR 55246).) Then, to ensure maximum opportunity for
specialties to submit supplementary survey data, we extended the
deadline to submit surveys until March 1, 2005. (See the Revisions to
Payment Policies Under the Physician Fee Schedule for Calendar Year
2002 final rule, published on November 7, 2003 (68 FR 63196).)
The CPEPs consisted of panels of physicians, practice
administrators, and nonphysicians (registered nurses (RNs), for
example) who were nominated by physician specialty societies and other
groups. There were 15 CPEPs consisting of 180 members from more than 61
specialties and subspecialties. Approximately 50 percent of the
panelists were physicians.
The CPEPs identified specific inputs involved in each physician
service provided in an office or facility setting. The inputs
identified were the quantity and type of nonphysician labor, medical
supplies, and medical equipment.
In 1999, the AMA's RUC established the Practice Expense Advisory
Committee (PEAC). Since 1999, and until March 2004, the PEAC, a multi-
specialty committee, reviewed the original CPEP inputs and provided us
with recommendations for refining these direct PE inputs for existing
CPT codes. Through its last meeting in March 2004, the PEAC provided
recommendations which we have reviewed and accepted for over 7,600
codes. As a result of this scrutiny, the current CPEP inputs differ
markedly from those originally recommended by the CPEPs. The PEAC has
now been replaced by the Practice Expense Review Committee (PERC),
which acts to assist the RUC in recommending PE inputs.
b. Allocation of Practice Expenses to Services
In order to establish PE RVUs for specific services, it is
necessary to establish the direct and indirect PE associated with each
service. Our current approach allocates aggregate specialty practice
costs to specific procedures and, thus, is often referred to as a
``top-down'' approach. The specialty PEs are derived from the AMA's SMS
survey and supplementary survey data. The PEs for a given specialty are
allocated to the services performed by that specialty on the basis

[[Page 45769]]

of the CPEP data and work RVUs assigned to each CPT code. The specific
process is detailed as follows:

Step 1--Calculation of the SMS Cost Pool for Each Specialty

The six SMS cost categories can be described as either direct or
indirect expenses. The three direct expense categories include clinical
labor, medical supplies and medical equipment. Indirect expenses
include administrative labor, office expense, and all other expenses.
We combine these indirect expenses into a single category. The SMS cost
pool for each specialty is calculated as follows:
The specialty PE per hour (PE/HR) for each of the three
direct and one indirect cost categories from the SMS is calculated by
dividing the aggregate PE per specialty by the specialty's total hours
spent in patient care activities (also determined by the SMS survey).
The PE/HR is divided by 60 seconds to obtain the PE per minute (PE/
MIN).
Each specialty's PE pools (for each of the three direct
and one indirect cost categories) are created by multiplying the PE/MIN
for the specialty by the total time the specialty spent treating
Medicare patients for all procedures (determined using Medicare
utilization data). Physician time on a procedure-specific level is
available through RUC surveys of new or revised codes and through
surveys conducted as part of the 5 year review process. For codes that
the RUC has not yet reviewed, the original data from the Harvard
resource-based RVU system survey is used. Physician time includes time
spent on the case prior to, during, and after the procedure. The
physician procedure time is multiplied by the frequency that each
procedure is performed on Medicare patients by the specialty.
The total specialty-specific SMS PE for each cost category
is the sum, for each direct and indirect cost category, of all of the
procedure-specific total PEs.
Table 1 illustrates an example of the calculation of the total SMS
cost pools for the three direct and one indirect cost categories
discussed in step 1. For this specialty, PE/HR for clinical payroll
expenses is $9.30 per hour. The hourly rate is divided by 60 minutes to
obtain the clinical payroll per minute for the specialty.
The total clinical payroll for providing hypothetical procedure
00001 for this specialty of $3,633,465 is the result of taking the
clinical payroll per minute of $0.16; multiplying this by the physician
time for procedure 00001 (56 minutes); and multiplying the result by
the number of times this procedure was provided to Medicare patients by
this specialty (418,602). The total amount spent on clinical payroll in
this specialty is $667,457,018. This amount is calculated by summing
the clinical payroll expenses of procedure 00001 and all of the other
services provided by this specialty.

TABLE 1.--Calculation of SMS Cost Pool
--------------------------------------------------------------------------------------------------------------------------------------------------------
Clinical Medical Medical Indirect
Standard methodology payroll (A) supplies (B) equipment (C) expenses (D) Total * (E)
--------------------------------------------------------------------------------------------------------------------------------------------------------
(a) PE/HR.......................................................... $9.30 $4.80 $7.40 $46.50 $68.00
(b) PE/Minute...................................................... $0.16 $0.08 $0.12 $0.78 $1.13
(c) Physician Time--00001.......................................... 56 56 56 56 56
(d) Number of Services............................................. 418,602 418,602 418,602 418,602 418,602
(e) Subtotal....................................................... $3,633,465 $1,875,337 $2,891,144 $18,167,327 $26,567,274
(f) All Other Services............................................. $663,823,552 $342,618,608 $528,203,687 $3,319,117,762 $4,853,763,609
(g) Total--SMS Pool................................................ $667,457,018 $344,493,945 $531,094,831 $3,337,285,089 $4,880,330,883
--------------------------------------------------------------------------------------------------------------------------------------------------------
(b) = (a)/60
(e) = (b)*(c)*(d)
(g) = (e)+(f)
* Components may not add to totals due to rounding.

Step 2--Calculation of CPEP Cost Pool

CPEP data provide expenditure amounts for the direct expense
categories (clinical labor, supplies and equipment cost) at the
procedure level. Multiplying the CPEP procedure-level PEs for each of
these three categories by the number of times the specialty provided
the procedure, produces a total category cost, per procedure, for that
specialty. The sum of the total expenses from each procedure results in
the total CPEP category cost for the specialty.
For example, in Table 2, using CPEP data, the clinical labor cost
of procedure 00001 is $65.23. Under the methodology described above in
this step, this is multiplied by the number of services for the
specialty (418,602), to yield the total CPEP data clinical labor cost
of the procedure: $27,305,408. In this example, the clinical labor cost
for all other services performed by this specialty is $831,618,600.
Therefore, the entire clinical labor CPEP expense pool for the
specialty is $858,924,008. Step 2 is repeated to calculate the CPEP
supply and equipment costs.

TABLE 2.--Calculation of CPEP Cost Pool
----------------------------------------------------------------------------------------------------------------
Clinical labor
Standard methodology (A) Supplies (B) Equipment (C)
----------------------------------------------------------------------------------------------------------------
(a) CPT 00001................................................ $65.23 $52.49 $1,556.86
(b) Allowed Services......................................... 418,602 418,602 418,602
(c) Subtotal................................................. $27,305,408 $21,972,838 $651,704,875
(d) All Other Services....................................... $831,618,600 $389,921,779 $5,277,570,148
(e) Total CPEP Pool.......................................... $858,924,008 $411,894,617 $5,929,275,023
----------------------------------------------------------------------------------------------------------------
(c) = (a)*(b)
(e) = (c)+(d)

[[Page 45770]]

Step 3--Calculation and Application of Scaling Factors

This step ensures that the total of the CPEP costs across all
procedures performed by the specialty equates with the total direct
costs for the specialty as reflected by the SMS data. To accomplish
this, the CPEP data are scaled to SMS data by means of a scaling factor
so that the total CPEP costs for each specialty equals the total SMS
cost for the specialty. (The scaling factor is calculated by dividing
the specialty's SMS pool by the specialty's CPEP pool.)
The unscaled CPEP cost per procedure value, at the direct cost
level, is then multiplied by the respective specialty scalar to yield
the scaled CPEP procedure value. The sum of the scaled CPEP direct cost
pool expenditures equals the total scaled direct expense for the
specific procedure at the specialty level.
In the Step 3 example shown in Table 3, the SMS total clinical
labor costs for the specialty is $667,457,018. This amount divided by
the CPEP total clinical labor amount of $858,924,008 yields a scaling
factor of 0.78. The CPEP clinical labor cost for hypothetical procedure
00001 is $65.23. Multiplying the 0.78 scaling factor for clinical labor
costs by $65.23 yields the scaled clinical labor cost amount of $50.69.
Individual scaling factors must also be calculated for supply and
equipment expenses. The sum of the scaled direct cost values, $50.69,
$43.90 and $139.45, respectively, equals the total scaled direct
expense of $234.04.
[GRAPHIC] [TIFF OMITTED] TP08AU05.000

Step 4--Calculation of Indirect Expenses

Indirect PEs cannot be directly attributed to a specific service
because they are incurred by the practice as a whole. Indirect costs
include rent, utilities, office equipment and supplies, and accounting
and legal fees. There is not a single, universally accepted approach
for allocating indirect practice costs to individual procedure codes.
Rather allocation involves judgment in identifying the base or bases
that are the best measures of a practice's indirect costs.
To allocate the indirect PEs to a specific service, we use the
following methodology:
The scaled direct expenses and the converted work RVU (the
work RVU for the service is multiplied by $34.5030, the 1995 CF) are
added together, and then multiplied by the number of services provided
by the specialty to Medicare patients;
The total indirect PEs per specialty are calculated by
summing the indirect expenses for all other procedures provided by that
specialty.
In the Table 4, the physician work RVU for procedure 00001 is 2.36.
Multiplying the work RVU by the 1995 CF of $34.5030 equals $81.43. The
physician work value is added to the scaled total direct expense from
Step 3 ($234.04). The total of $314.47 is a proxy for the indirect PE
for the specialty attributed to this procedure. The total indirect
expenses are then multiplied by the number of services provided by the
specialty (418,602), to calculate total indirect expenses for this
procedure of $132,055,728. The process is repeated across all
procedures performed by the specialty, and the indirect expenses for
each service are summed to arrive at the total specialty indirect PE
pool of $6,745,545,434.

Table 4.--Calculation of Indirect Expense
----------------------------------------------------------------------------------------------------------------
Physician Total direct
Standard methodology work* expense Total
(A) (B) (C)
--------------------------------------------------------------
(a) CPT 00001................................................ $81.43 $234.04 $315.47
(b) Allowed Services......................................... .............. .............. 418,602
(c) Subtotal................................................. .............. .............. $132,055,728
(d) All Other Services....................................... .............. .............. $6,613,489,706
(e) Total Indirect Expense................................... .............. .............. $6,745,545,434
----------------------------------------------------------------------------------------------------------------
*Calculated by multiplying work RVU of 2.36 by 1995 conversion factor of $34.5030.

[[Page 45771]]

Step 5--Calculation and Application of Indirect Scaling Factors

Similar to the direct costs, the indirect costs are scaled to
ensure that the total across all procedures performed by the specialty
equates with the total indirect costs for the specialty as reflected by
the SMS data. To accomplish this, the indirect costs calculated in Step
4 (Table 4) are scaled to SMS data. The calculation of the indirect
scaling factors is as follows:
The specialty's total SMS indirect expense pool is divided
by the specialty's total indirect expense pool calculated in Step 4
(Table 4), to yield the indirect expense scaling factor.
The unscaled indirect expense amount, at the procedure
level, is multiplied by the specialty's scaling factor to calculate the
procedure's scaled indirect expenses.
The sum of the scaled indirect expense amount and the
procedure's direct expenses yields the total PEs for the specialty for
this procedure.
In table 5, to calculate the indirect scaling factor for
hypothetical procedure 00001, divide the total SMS indirect pool,
$3,337,285,089 (calculated in Step 1--Table 1), by the total indirect
expense for the specialty across all procedures of $6,745,545,434. This
results in a scaling factor of 0.49. Next, the unscaled indirect cost
of $315.47 is multiplied by the 0.49 scaling factor, resulting in
scaled indirect cost of $156.07. To calculate the total PEs for the
specialty for procedure 00001, the scaled direct and indirect expenses
are added, totaling $390.12.
[GRAPHIC] [TIFF OMITTED] TP08AU05.001

Step 6--Weighted Average of RVUs for Procedures Performed by More Than
One Specialty

For codes that are performed by more than one specialty, a weighted
average PE is calculated based on Medicare frequency data of all
specialties performing the procedure as shown in Table 6.

Table 6.--Weight Averaging for All Specialties
------------------------------------------------------------------------
Percent of
Standard Methodology Practice total allowed
expense value services
(A) (B)
-----------------------------------------
(a) Specialty Total Practice Expense.... $390.12 83
(b) Weighted Avg.--All Other Specialties $929.87 17
(c) Weighted Avg.--All Specialties...... $481.70 100
------------------------------------------------------------------------

Step 7--Budget Neutrality and Final RVU Calculation

The total scaled direct and indirect inputs are then adjusted by a
budget neutrality factor to calculate RVUs. Section
1848(c)(2)(B)(ii)(II) of the Act provides that adjustments in RVUs may
not cause total PFS payments to differ by more than $20 million from
what they would have been if the adjustments were not made. Budget
neutrality for the upcoming year is determined relative to the sum of
PE RVUs for the current year. Although the PE RVUs for any particular
code may vary from year-to-year, the sum of PE RVUs across all codes is
set equal to the current year. The budget neutrality factor (BNF) is
equal to the sum of the current year's PE RVUs, divided by the sum of
the direct and indirect inputs across all codes for the upcoming year.
The BNF is applied to (multiplied by) the scaled direct and indirect
expenses for each code to set the PE RVU for the upcoming year.
In Table 7, the sum of the scaled direct and indirect expenses for
hypothetical code 00001 ($481.70) is multiplied by the BNF (0.02 in
this example) to yield a PE RVU of 10.60.

[[Page 45772]]

Table 7.--Calculate PE RVU
----------------------------------------------------------------------------------------------------------------
Total scaled
direct and Budget
indirect neutrality Final PE RVU
inputs factor
(A) (B) (C)
-----------------------------------------------------------------
(a) Code 00001.................................................. $481.70 0.02 10.60
----------------------------------------------------------------------------------------------------------------

c. Other Methodological Issues: Nonphysician Work Pool (NPWP)
As an interim measure, until we could further analyze the effect of
the top-down methodology on the Medicare payment for services with no
physician work (including the technical components (TCs) of radiation
oncology, radiology and other diagnostic tests), we created a separate
PE pool for these services. However, any specialty society could
request that its services be removed from the nonphysician work pool.
We have removed some services from the nonphysician work pool if we
find that the requesting specialty provides the service the majority of
the time.

NPWP Step 1--Calculation of the SMS Cost Pool for Each Specialty

This step parallels the calculations described above for the
standard ``top-down'' PE allocation methodology. For codes in the
nonphysician work pool, the direct and indirect SMS costs are set equal
to the weighted average of the PE/HR for the specialties that provide
the services in the pool. Clinical staff time is substituted for
physician time in the calculation. The clinical staff time for the code
is from CPEP data. Otherwise, the calculation is similar to the method
described previously for codes with physician time.
The following example in Table 8 illustrates this calculation for
hypothetical code 00002. In this example, the average clinical payroll
PE/HR for all specialties in the nonphysician work pool is $12.30 and
the clinical staff time for code 00002 is 116 minutes.

Table 8.--Calculate SMS Cost Pools for Nonphysician Work Pool
----------------------------------------------------------------------------------------------------------------
Non-Physician work pool Clinical Medical Medical Indirect
methodology (NPWP) payroll supplies equipment expenses Total*
(A) (B) (C) (D) (E)
---------------------------------
(a) NPWP--PE/HR................. $12.30 $7.40 $3.20 $46.30 $69.00
(b) NPWP--PE/Minute............. 0.21 0.12 0.05 0.77 1.15
(c) Clinical Staff Time--00002.. 116 116 116 116 116
(d) Number of Services.......... 105,095 105,095 105,095 105,095 105,095
(e) Total--NPWP ``SMS'' Pool.... $2,499,159 $1,503,559 $650,188 $9,407,404 $14,019,673
----------------------------------------------------------------------------------------------------------------
(b) = (a)/60
(e) = (b)*(c)*(d)
* Components may not add to totals due to rounding.

NPWP Step 2--Calculation of Charge-based PE RVU Cost Pool

The nonphysician work pool calculation uses the 1998 (charge-based)
PE RVU value for the code, multiplied by the 1995 CF (25.74 x $34.503 =
$888.11). The percentage of clinical labor, supplies and equipment are
the percentage that each PE category represents for all physicians
relative to the total PE for all physicians (calculated from the SMS
data) as shown in Table 9.

Table 9.--Calculate Charge-Based Cost Pools for Nonphysician Work Pool
----------------------------------------------------------------------------------------------------------------
NPWP methodology Clinical Supplies Equipment
(A) (B) (C)
-----------------------------------------------------------------
(a) CPT 00002--Charge Based Value............................... $888.11 $888.11 $888.11
(b) Percent Clinical, Supplies, Equipment....................... 0.18 0.11 0.05
(c) CPT 00002................................................... 158.08 95.03 41.74
(d) Number of--NPWP............................................. 105,095 105,095 105,095
(e) Total NPWP ``CPEP'' Pool.................................... $16,613,742 $4,386,775 $9,986,912
----------------------------------------------------------------------------------------------------------------
(c) = (a)*(b)
(e) = (c)*(d)

NPWP Step 3--Calculation and Application of Scaling Factors

After the total cost pools for each specialty and code performed by
the specialty are calculated, the steps to ensure the total costs for
all of the procedures performed by a specialty do not exceed the total
costs for the specialty (scaling) are the same as those described
previously for codes with physician work.
In Table 10 below, the SMS total clinical labor costs is
$2,499,159. This amount divided by the charge-based total clinical
labor amount of $16,613,742 yields a scaling factor of 0.15. The
charge-based clinical labor cost for hypothetical procedure 00002 is
$158.08 (from step 2--Table 2). Multiplying the 0.15 scaling factor for
clinical labor costs by $158.08 yields the

[[Page 45773]]

scaled clinical labor cost amount of $23.78. Individual scaling factors
must be calculated for both supply and equipment expenses. The sum of
the scaled direct cost values, $23.78, $32.57 and $2.72, respectively,
equals the total scaled direct expense of $59.07.
[GRAPHIC] [TIFF OMITTED] TP08AU05.002

NPWP Step 4--Calculation of Indirect Expenses

Because codes in the nonphysician work pool do not have work RVUs,
indirect expenses are set equal to direct expenses (for codes with
physician work, indirect expenses equal the sum of the scaled direct
expenses and the converted work RVU). This amount is then multiplied by
the number of times the procedure is performed.
In Table 11, the scaled total direct expense from Step 3 (Table 3)
($408.79) is also the proxy for the total indirect expense attributed
to the procedure. The total indirect expense is multiplied by the
number of services (105,095), to calculate total indirect cost for this
procedure of $6,207,961.

Table 11.--Calculation of Indirect Expenses
----------------------------------------------------------------------------------------------------------------
Physician Total direct
NPWP methodology work* expense Total
(A) (B) (C)
-----------------------------------------------------------------
(a) CPT 00002................................................... $ $59.07 $59.07
(b) Allowed Services--NPWP...................................... .............. .............. 105,095
(c) Total NPWP Indirect Expense................................. .............. .............. $6,207,961
----------------------------------------------------------------------------------------------------------------

NPWP Step 5--Calculation and Application of Indirect Scaling Factors

Similar to the direct costs, the indirect costs are scaled to
ensure that the total of the charge-based PE RVU costs across all
procedures equates with the total indirect costs as reflected by the
SMS data for the NPWP. To accomplish this, the charge-based data are
scaled to SMS data so the total charge-based costs equal the total SMS
costs.
In Table 12, to calculate the indirect scaling factor for
hypothetical procedure 00002, divide the total SMS indirect expense,
$9,407,404 (from Step 1--Table 1), by the total charge-based indirect
expense of $6,207,961. This results in a scaling factor of 1.51. Next,
the unscaled indirect charge-based cost for procedure 00002 of $59.07
(from step 4--Table 4) is multiplied by the 1.51 scaling factor,
resulting in scaled indirect costs for this procedure of $89.19.

[[Page 45774]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.092

NPWP Step 6--Budget Neutrality and Final RVU Calculation
Similar to the calculation for codes with physician work, the BNF
is applied to (multiplied by) the scaled direct and indirect expenses
for each code to set the PE RVU for the upcoming year.
In Table 13, the sum of the scaled direct and indirect expenses for
hypothetical code 00002 ($148.26) is multiplied by the BNF (0.022 in
this example) to yield a PE RVU of 3.26.

Table 13.--Budget Neutrality and Final RVU Calculation
------------------------------------------------------------------------
Total
scaled
direct Budget Final PE
and neutrality RVU
indirect factor
inputs
------------------------------------------------------------------------
Code 00002............................ $148.26 0.022 3.26
------------------------------------------------------------------------

d. Facility/Non-facility Costs
Procedures that can be performed in a physician's office as well as
in a hospital have two PE RVUs; facility and non-facility. The non-
facility setting includes physicians' offices, patients' homes,
freestanding imaging centers, and independent pathology labs. Facility
settings include hospitals, ambulatory surgery centers, and skilled
nursing facilities (SNFs). The methodology for calculating the PE RVU
is the same for both facility and non-facility RVUs, but is calculated
independently to yield two separate PE RVUs. Because the PEs for
services provided in a facility setting are generally included in the
payment to the facility (rather than the payment to the physician under
the fee schedule), the PE RVUs are generally lower for services
provided in the facility setting.
2. PE Proposals for CY 2006
The following discussions outline the specific PE related proposals
for CY 2006.
a. Supplemental PE Surveys
The following discussions outline the criteria for supplemental
survey submission as well as information we have received for approval.
(1) Survey Criteria and Submission Dates
In accordance with section 212 of the BBRA, we established criteria
to evaluate survey data collected by organizations to supplement the
SMS survey data normally used in the calculation of the PE component of
the PFS. In the Payment Policies Under the Physician Fee Schedule for
Calendar Year 2002 final rule, published November 7, 2003 (68 FR
63196), we provided that, beginning in 2004, supplemental survey data
had to be submitted by March 1 to be considered for use in computing PE
RVUs for the following year. This allows us to publish our decisions
regarding survey data in the proposed rule and provides the opportunity
for public comment on these results before implementation.
To continue to ensure the maximum opportunity for specialties to
submit supplemental PE data, we extended until 2005 the period that we
would accept survey data that meet the criteria set forth in the
November 2000 PFS final rule. The deadline for submission of
supplemental data to be considered in CY 2006 was March 1, 2005.
(2) Submission of Supplemental Survey Data
The following discussion outlines the survey data submitted for CY
2004 and CY 2005.
Surveys Submitted in 2004
As explained in the November 15, 2004 Physician Fee Schedule final
rule (69 FR 66242), we received surveys by March 1, 2004 from the
American College of Cardiology (ACC), the American College of Radiology
(ACR), and the American Society for Therapeutic Radiation Oncology
(ASTRO). The data submitted by the ACC and the ACR met our criteria.
However, as requested by the ACC and the ACR, we deferred using their
data until issues related to the nonphysician work pool could be
addressed. We are proposing to use the ACC and ACR survey data in the
calculation of PE RVUs for 2006, but only as specified in the proposals
relating to a revised methodology for establishing direct PE RVUs, and
a transition period for the revised methodology, as described below.
The survey data from ASTRO did not meet the precision criteria
established for supplemental surveys, therefore, we did not use it in
the calculation of PE RVUs for 2005.
Surveys Submitted in 2005
This year we received surveys from the Association of Freestanding
Radiation Oncology Centers (AFROC), the American Urological Association
(AUA), the American Academy of Dermatology Association (AADA), the
Joint Council of Allergy, Asthma, and Immunology (JCAAI), the National
Coalition of Quality Diagnostic Imaging Services (NCQDIS) and a joint
survey from the American Gastroenterological Association (AGA), the
American Society of Gastrointestinal Endoscopy (ASGE) and the American
College of Gastroenterology (ACG)
We contract with the Lewin Group to evaluate whether the
supplemental

[[Page 45775]]

survey data that are submitted meet our criteria and to make
recommendations to us regarding their suitability for use in
calculating PE RVUs. (The Lewin Group report on the 2005 submissions is
available on the CMS Web site at http://www. cms.hhs. gov/physicians/

pfs/). The report indicated that, except for the survey from NCQDIS,
all met our criteria and we are proposing to accept these. The survey
data submitted by the NCQDIS on independent diagnostic testing
facilities (IDTFs) did not meet the precision criterion of a 90 percent
confidence interval with a range of plus or minus 15 percent of the
mean (that is, 1.645 times the standard error of the mean, divided by
the mean, is equal to or less than 15 percent of the mean). For the
NCQDIS survey, the precision level was calculated at 16.3 percent of
the mean PE/HR (weighted by the number of physicians in the practice).
However, the Lewin Group has recommended that we accept the data from
NCQDIS. The Lewin Group points out that PE data for IDTFs do not
currently exist, and suggests that the need for data for the specialty
should be weighed against the precision requirement.
We are proposing not to accept the NCQDIS data to calculate the PE
RVUs for services provided by IDTFs. As just noted, the NCQDIS data do
not meet our precision requirements. We established the minimum
precision standards because we believe it is necessary to ensure that
the data used are valid and reliable, and the consistent application of
the precision criteria is the best way to accomplish that objective.
Section 303(a)(1) of the MMA added section 1848(c)(2)(I) of the Act
to require us to use survey data submitted by a specialty group where
at least 40 percent of the specialty's payments for Part B services are
attributable to the administration of drugs in 2002 to adjust PE RVUs
for drug administration services. The statute applies to surveys that
include expenses for the administration of drugs and biologicals, and
are received by March 1, 2005 for determining the CY 2006 PE RVUs.
Section 303(a)(1) of the MMA also amended section 1848(c)(2)(B)(iv)(II)
of the Act to provide an exemption from budget neutrality for any
additional expenditures resulting from the use of these surveys. In the
Changes to Medicare Payment for Drugs and Physician Fee Schedule
Payments for Calendar Year 2004 interim final rule published January 7,
2004 (69 FR 1084), we stated that the specialty of urology meets the
above criteria, along with gynecology and rheumatology (69 FR 1094).
Because we are accepting new survey data from the AUA, we are required
to exempt, from the budget neutrality adjustment any impacts of
accepting these data for purposes of calculating PE RVUs for drug
administration services.
In addition, Lewin recommended blending the radiation oncology data
from this year's AFROC survey data with last year's ASTRO survey data
to calculate the PE/HR. According to the Lewin Group, the goal of the
AFROC survey was to represent the population of freestanding radiation
oncology centers only. In order to develop an overall average for the
radiation oncology PE pool, the Lewin Group recommended we use the
AFROC survey for freestanding radiation oncology centers, and the
hospital-based subset of last year's ASTRO survey. We agree that this
blending of the AFROC and ASTRO data is a reasonable way to calculate
an average PE/HR that fully reflects the practice of radiation oncology
in all settings. Therefore, we are proposing to use the new PE/HR
calculated in this manner for radiation oncology.
We propose to use the following PE/HR figures (deflated to 1995
values to be consistent with the SMS data):

TABLE 14.--Practice Expense Per Hour Figures
--------------------------------------------------------------------------------------------------------------------------------------------------------
Clinical Admin. Office Medical Medical
Specialty staff staff expense supplies equipment Other Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Radiology.................................................... 14.8 18.6 16.5 6.5 13.1 26.8 96.3
Cardiology................................................... 38.3 34.5 35.7 16.5 12.2 19.1 156.3
Radiation Oncology........................................... 35.6 18.9 28.5 4 20.1 21.2 128.3
Urology...................................................... 18.4 27.9 35.3 16.7 7.5 15.9 121.7
Dermatology.................................................. 27.9 35.2 49.4 12.4 7.2 20 152.1
Allergy/Immunology........................................... 48.2 39.8 47 17.3 4.8 22.4 179.6
Gastroenterology............................................. 15.4 23.2 26.8 4.8 3.3 11.5 85
--------------------------------------------------------------------------------------------------------------------------------------------------------

The deadline to submit supplemental PE surveys was March 1, 2005.
As discussed in detail below, we are proposing to revise our
methodology to calculate direct PE RVUs from the current top-down cost
allocation methodology to a bottom-up methodology. Although we would
continue to use the SMS data and the incorporated supplemental survey
data for indirect PEs, we are not proposing to extend the deadline for
submitting supplemental survey data at this time. Instead, we are
inviting comment on the most appropriate way to proceed to ensure the
indirect PEs per hour are accurate and consistent across specialties.
(3) Revisions to the PE Methodology
Since 1997, when we first proposed a resource-based PE methodology,
we have had several major goals for this payment system. One has been
to encourage the maximum input from the medical community regarding our
PE data and methodology. We have worked closely with the PEAC, PERC,
RUC and the Health Care Professional Advisory Committee (HCPAC) which
are all multi-specialty groups that allow the medical community to
participate by making recommendations to us on the PE direct inputs. We
also extended the deadline for the submission of supplementary PE
surveys to ensure that specialties had the opportunity to submit new
aggregate PE data. In addition, we have had scores of meetings with
physician, practitioner and industry groups, and have made many
modifications to our methodology in response to their comments and
input. We look forward to continuing to work with the medical community
as we strive to further improve our PE methodology.
We also have had three specific goals for the resource-based PE
methodology itself. The following goals have also been supported in
numerous comments we have received from the medical community:
To ensure that the PE payments reflect, to the greatest
extent possible, the actual relative resources required for each of the
services on the PFS. This could only be accomplished by using

[[Page 45776]]

the best available data to calculate the PE RVUs.
To develop a payment system for PE that is understandable
and at least somewhat intuitive, so that specialties could generally
predict the impacts of changes in the PE data.
To stabilize the PE payments so that there are not large
fluctuations in the payment for given procedures from year-to-year.
We believe that we have consistently made a good faith effort to
ensure fairness in our PE payment system by using the best data
available at any one time. The change from the originally proposed
``bottom-up'' to the ``top-down'' methodology came about because of a
concern that the resource input data developed in 1995 by the CPEP were
less reliable than the aggregate specialty cost data derived from the
SMS process. The adoption of the top-down approach necessitated the
creation of the nonphysician work pool. The nonphysician work pool is a
separate pool created to allocate PEs for codes that have only a
technical (rather than professional) component, or codes that are not
performed by physicians. In the Physician Fee Schedule (CY 2000);
Payment Policies and Relative Value Unit Adjustment final rule,
published November 2, 1999 (64 FR 59379), we indicated that ``the
purpose of this pool was only to protect the (TC) services from the
substantial decreases * * * until further refinement could take place *
* *'' (64 FR 59406).
However, the situation has now changed. The PEAC/PERC/RUC has
completed the refinement of the original CPEP data and we believe that
the refined PE inputs now, in general, accurately capture the relative
direct costs of performing PFS services. On the other hand, although we
have now accepted supplementary survey data from 13 specialties, we
have not received updated aggregate cost data from most specialties.
Thus, we believe that, in the aggregate, the refined CPEP data
represent, more reliably, the relative direct costs PE inputs for
physician services.
The major specialties comprising the nonphysician work pool
(radiology, radiation oncology and cardiology) have submitted
supplemental survey data that we are proposing to accept. (See the
discussion on supplementary surveys above.) Now that we have
representative aggregate PE data for these specialties, the continued
necessity and equity of treating these technical services outside the
PE methodology applied to other services is questionable.
We have also taken steps to make our complex top-down PE
methodology more understandable. For example, we eliminated the
somewhat arcane ``linking'' of direct cost input data when more than
one CPEP panel reviewed a service and did away with the confusing and
unhelpful distinction between procedure-specific and indirect
equipment. However, we acknowledge that most in the medical community
would find our current methodology, as described above, neither clear
nor intuitive. For example, because of the need to scale the CPEP/RUC
inputs to the SMS PEs under our top-down methodology, the PE RVUs for a
procedure do not necessarily change proportionately with changes in the
direct inputs. This raises the question as to what would now be the
most straightforward and intuitive methodology for calculating the
direct PE RVUs.
Due to the ongoing refinement by the RUC of the direct PE inputs,
we had expected that the PE RVUs would necessarily fluctuate from year-
to-year, frustrating temporarily our efforts to reach the goal of
stabilizing the PE portion of the PFS. At the same time, it became
apparent that certain aspects of our methodology exacerbated the yearly
fluctuations. For example, the need to scale the CPEP costs to equal
the SMS costs meant that any changes in the direct PE inputs for one
service often leads to unexpected results for other services where the
inputs had not been altered. In addition, the services priced by the
nonphysician work pool methodology have proved to be especially
vulnerable to any change in the pool's composition. We understand the
need for stable PE RVUs, so that physicians and other practitioners can
anticipate from year-to-year what the relative payments will be for the
services they perform. Now, that the CPEP/RUC refinement of existing
services is virtually complete, this appears to be an opportunity for
us to propose a way to provide stability to the PE RVUs.
Therefore, consistent with our goals of using the most appropriate
data, simplifying our methodology, and increasing the stability of the
payment system, we are proposing the following changes to our PE
methodology:
Use a Bottom-Up Methodology To Calculate Direct PE Costs
Instead of using the top-down approach to calculate the direct PE
RVUs, where the aggregate CPEP/RUC costs for each specialty are scaled
to match the aggregate SMS costs, we propose to adopt a bottom-up
method of determining the relative direct costs for each service. Under
this method, the direct costs would be determined by summing the costs
of the resources--the clinical staff, equipment and supplies--typically
required to provide the service. The costs of the resources, in turn,
would be calculated from the refined CPEP/RUC inputs in our PE
database.
Eliminate the Nonphysician Work Pool
Now that we have new survey data for the major specialties that
comprise the nonphysician work pool, we would eliminate the pool and
calculate the PE RVUs for the services currently in the pool by the
same methodology used for all other services. This would allow the use
of the refined CPEP/RUC data to price the direct costs of individual
services, rather than utilizing the pre-1998 charge-based PE RVUs.
Utilize the Current Indirect PE RVUs, Except for Those
Services Affected by the Accepted Supplementary Survey Data
As described previously, the SMS and supplementary survey data are
the source for the specialty-specific aggregate indirect costs used in
our PE calculations. We then allocate to particular codes on the basis
of the direct costs allocated to a code and the work RVUs. Although we
now believe the CPEP/RUC data are preferable to the SMS data for
determining direct costs, we have no information that would indicate
that the current indirect PE methodology is inaccurate. We also are not
aware of any alternative approaches or data sources that we could use
to calculate more appropriately the indirect PE, other than the new
supplementary survey data, which we propose to incorporate into our PE
calculations. Therefore, we propose to use the current indirect PEs in
our calculation incorporating the new survey data into the codes
performed by the specialities submitting the surveys. We would welcome
any suggestions that would assist us in further refinement of this
indirect PE methodology. For example, we are considering whether we
should continue to accept supplementary survey data or whether it would
be preferable and feasible to have an SMS-type survey of only indirect
costs for all specialties, or whether a more formula-based methodology
independent of the SMS data should be adopted, perhaps using the
specialty-specific indirect-to-total cost percentage as a basis of the
calculation. For a prior discussion of many of the issues associated
with allocating indirect costs, we would refer the reader to the
Physician Fee Schedule (CY 2000);

[[Page 45777]]

Payment Policies and Relative Value Unit Adjustment proposed rule,
published June 5, 1998 (63 FR 30823).
Transition the Resulting Revised PE RVUs over a Four-Year
Period
A complete analysis of the impacts of these changes is contained in
the impact analysis in section V. of this proposed rule. We are
concerned that, when combined with an expected negative update factor
for CY 2006, the shifts in some of the PE RVUs resulting from our
proposals could cause some measure of financial stress on medical
practices. Therefore, we are proposing to transition the proposed PE
changes over a 4-year period. This would also give ample opportunity
for us, as well as the medical specialties and the RUC, to identify any
anomalies in the PE data, to make any further appropriate revisions,
and to collect additional data, as needed prior to the full
implementation of the proposed PE changes.
During the transition period, the PE RVUs will be calculated on the
basis of a blend of RVUs calculated using our proposed methodology
described above (weighted by 25 percent during CY 2006, 50 percent
during CY 2007, 75 percent during CY 2008, and 100 percent thereafter),
and the current CY 2005 PE RVUs for each existing code.
We believe that implementing these proposed changes will meet our
goals to produce a more accurate, more intuitive and more stable PE
methodology.
Now that the direct PE inputs have been refined, we believe that
the proposed CPEP/RUC direct input data are superior to the specialty-
specific SMS PE/HR data for the purposes of determining the typical
direct PE resources required to perform each service on the PFS. First,
we have received recommendations on the procedure-specific inputs from
the multi-specialty PEAC that were based on presentations from the
relevant specialties after being closely scrutinized by the PEAC using
standards and packages agreed to by all involved specialties. Second,
the refined CPEP/RUC data are more current than the SMS data for the
majority of specialties. Third, for direct costs, it appears more
accurate to assume that the costs of the clinical staff, supplies and
equipment are the same for a given service, regardless of the specialty
that is performing it. This assumption does not hold true under the
top-down direct cost methodology, where the specialty-specific scaling
factors create widely differing costs for the same service.
We also would argue that the proposed methodology is less confusing
and more intuitive than the current approach. First, the nonphysician
work pool would be eliminated and all services would be priced using
one methodology, eliminating the complicated calculations needed to
price nonphysician work pool services. Second, the method for
calculation of direct costs can now be described in sentences rather
than paragraphs. Third, any revisions made to the direct inputs would
now have predictable results. Changes in the direct practice inputs for
a service would proportionately change the PE RVUs for that service
without significantly affecting the PE RVUs for unrelated services.
The proposed methodology would also create a system that would be
significantly more stable from year-to-year than the current approach.
Specialties should no longer experience the wide fluctuations in
payment for a given service due to an aberrant direct cost scaling
factor. Direct PEs should only change for a service if it is further
refined or when prices are updated, while indirect PEs should change
only when there are changes in the mix of specialties performing the
service or with the use of any future new survey data for indirect
costs.
We recognize that there are still some outstanding issues that need
further consideration, as well as input from the medical community. For
example, although we believe that the elimination of the nonphysician
work pool would be, on the whole, a positive step, some practitioner
services, such as audiology and medical nutrition therapy, would be
significantly impacted by the proposed change. In addition, there are
still services, such as the ESRD visit codes, for which we have no
direct input information. Also, as mentioned above, we do not have
current SMS or supplementary survey data to calculate the indirect
costs for most specialties. Further, we do not yet have accurate
utilization for the new drug administration codes that were created in
response to the MMA provision on drug administration. Therefore, we are
not proposing to change the RVU for these services at this time, but to
include them under our proposed methodology in next year's rule when we
have appropriate data. The proposed transition period would give us the
opportunity to work with the affected specialties to collect the needed
survey or other data or to determine whether further revisions to our
PE methodology are needed.
We, therefore, welcome all comments on these proposed changes,
particularly those concerning additional modifications to the indirect
PE methodology that might help us further our intended goals.
(4) PE Recommendations on CPEP Inputs for CY 2006
Since 1999, the PEAC, an advisory committee of the AMA's RUC,
provided us with recommendations for refining the direct PE inputs
(clinical staff, supplies, and equipment) for existing CPT codes. The
PEAC held its last meeting in March 2004 and the AMA established a new
committee, PERC, to assist the RUC in recommending PE inputs.
The PERC completed refinement of approximately 200 remaining codes
at its meetings held in September 2004 and February 2005. (A list of
these codes can be found in Addendum C of this proposed rule.)
We have reviewed the PERC-submitted recommendations and propose to
adopt nearly all of them. We have worked with the AMA staff to correct
any typographical errors and to make certain that the recommendations
are in line with previously accepted standards.
The complete PERC recommendations and the revised PE database can
be found on our Web site. (See the ``Supplementary Information''
section of this proposed rule for directions on accessing our Web
site.)
We disagreed with the PERC recommendation for clinical labor time
for CPT code 36522, Extracorporeal Photophoresis. In last year's
Revisions to Payment Policies Under the Physician Fee Schedule for
Calendar Year 2005 final rule, published November 15, 2004 (69 FR
66236) we assigned, on an interim basis, 223 minutes of total clinical
labor for the service period based on the typical treatment time of
approximately 4 hours. The PERC, however, recommended 122 minutes total
clinical labor time for the service period, which allows for 90 minutes
of nurse ``intra service'' time for the performance of the procedure
(the society originally proposed 180 minutes). We believe that 135
minutes is a more appropriate estimation of the clinical staff time
actually needed for the intra time, as it more closely approximates the
time assigned to the other procedures in this family of codes,
including CPT codes 36514, 36515, and 36516. Therefore, we are
proposing a total clinical labor time of 167 minutes for the service
period.
The PERC/RUC also recommended that no inputs be assigned to several
codes because the services were not performed in the office setting.
However, our utilization data shows that four of these codes (CPT codes

[[Page 45778]]

15852, 76975, 78350, and 86585) are currently priced in the office and
are performed with sufficient frequency in the office to warrant this.
Therefore, we are proposing not to accept the PERC/RUC recommendations
for these services at this time, but are requesting comments from the
relevant specialties as to whether the recommendations should be
accepted.
(5) Payment for Splint and Cast Supplies
In the Physician Fee Schedule (CY 2000); Payment Policies and
Relative Value Unit Adjustment final rule, published November 2, 1999
(64 FR 59379) and the Physician Fee Schedule (CY 2002); Payment
Policies and Relative Value Units Five-Year Review and Adjustments
final rule, published November 1, 2000 (66 FR 55245), we removed cast
and splint supplies from the PE database for the CPT codes for fracture
management and cast/strapping application procedures. Because casting
supplies could be separately billed using Healthcare Common Procedure
Coding System (HCPCS) codes that were established for payment of these
supplies under section 1861(s)(5) of the Act, we did not want to make
duplicate payment under the PFS for these items.
However, in limiting payment of these supplies to the HCPCS codes
Q4001 through Q4051, we unintentionally prohibited remuneration for
these supplies when they are not used for reduction of a fracture or
dislocation, but rather, are provided (and covered) as incident to a
physician's service under section 1861(s)(2)(A) of the Act.
Because these casting supplies are covered either through sections
1861(s)(5) of the Act or 1861(s)(2)(A) of the Act, we are proposing to
eliminate the separate HCPCS codes for these casting supplies and to
again include these supplies in the PE database. This will allow for
payment for these supplies whether based on section 1861(s)(5) of the
Act or section 1861(s)(2)(A) of the Act, while ensuring that no
duplicate payments are made. In addition, by bundling the cost of the
cast and splint supplies into the PE component of the applicable
procedure codes under the PFS, physicians will no longer need to bill
Q-codes in addition to the procedure codes to be paid for these
materials.
Because these supplies were removed from the PE database prior to
the refinement of these services by the PEAC, we are proposing to add
back the original CPEP supply data for casts and splints to each
applicable CPT code. For this reason, it is imperative that the
relevant medical societies review the ``Direct Practice Expense
Inputs'' on our Web site at http://www.cms.hhs.gov/physicians/pfs

(under the supporting documents for the 2006 proposed rule) and provide
us with feedback regarding the appropriateness of the type and amount
of casting and splinting supplies. We are also requesting specific
information about the amount of casting supplies needed for the 10-day
and 90-day global procedures, because these supplies may not be
required at each follow-up visit; therefore, the number of follow-up
visits may not reflect the typical number of cast changes required for
each service.
The following cast and splint supplies have been reincorporated as
direct inputs: fiberglass roll, 3 inch and 4 inch; cast padding, 4
inch; webril (now designated as cast padding, 3 inch); cast shoe;
stockingnet/stockinette, 4 inch and 6 inch; dome paste bandage; cast
sole; elastoplast roll; fiberglass splint; ace wrap, 6 inch; and kerlix
(now designated as bandage, kerlix, sterile, 4.5 inch) and malleable
arch bars. The cast and splint supplies have been added to the
following CPT codes: 23500 through 23680, 24500 through 24685, 25500
through 25695, 26600 through 26785, 27500 through 27566, 27750 through
27848, 28400 through 28675, and 29000 through 29750.
Because we are proposing to pay for splint and cast through the PE
component of the PFS, we would no longer make separate payment for
these items using the HCPCS Q-codes.
(6) Miscellaneous PE Issues
In this section, we discuss our specific proposals related to PE
inputs.
Supply Items for CPT Code 95015
We are proposing to change the supply inputs for CPT code 95015,
intracutaneous (intradermal) tests, sequential and incremental, with
drugs, biologicals or venoms, immediate type reaction, specify number
of tests, based on comments received from the JCAAI. The society
reports that ``venom'' is the most typical test substance used when
performing this service and that ``antigen'', currently listed in the
PE database, is never used. The JCAAI also suggests that the
appropriate venom quantity should be 0.3 ml (instead of the 0.1 ml now
listed) because of the necessity to use all five venoms (honey bee,
yellow jacket, yellow hornet, white face hornet and wasp) to perform
this sensitivity testing; that is, 1 ml of each venom type for a total
of 5 ml of venom. The diluted venoms are sequentially administered
until sensitivity is shown, beginning with the lowest concentration of
venom and subsequently administering increasing concentrations of each
venom. The JCAAI states that the typical number of tests per session is
approximately 17, consistent with the RUC-approved vignette, which
represents 0.3 ml of venom per test when divided into the total of 5 ml
of venom needed to perform the entire service. We accept the
specialty's argument and propose to change the test substance in CPT
code 95015 to venom, at $10.70(from single antigen, at $5.18) and the
quantity to 0.3 ml (from 0.1 ml).
Flow Cytometry Services
In the November 15, 2004 final rule (69 FR 66236), we solicited
comments on the interim RVUs and PE inputs for new and revised codes,
including flow cytometry services. Based on comments received and
additional discussions with representatives from the society
representing independent laboratories, we are proposing to revise the
PE inputs for the flow cytometry CPT codes 88184 and 88185.
The specialty society indicated that a cytotechnologist is the
typical clinical staff type to perform the intra portion of this
service for both codes. They also provided us with a list of six
additional equipment items, along with documented prices, and with the
minutes in use for each service. All six equipment items are necessary
to perform the flow cytometry services described in CPT code 88184,
while only two (the computer and printer) are needed for CPT code
88185. For supplies, the society believes the antibody cost currently
reflected in the PE database is too low, and so they provided us with
an average antibody cost of $8.50, derived from a survey of
laboratories performing these services. Using the vignette for the
myeloid/lymphoid panel to represent the typical service, this average
cost was based on the cost of the total number of antibodies that are
required to report the typical number of reported markers. Based on
this information, we are proposing to change the following direct
inputs used for PE:
+ Clinical Labor: Change the staff type in the service
(intra)period in both CPT codes 88184 and 88185 to cytotechnologist, at
$0.45 per minute (currently lab technician, at $0.33 per minute).
+ Supplies: Change the antibody cost for both CPT codes 88184 and
88185 to $8.50 (from $3.544).
+ Equipment: Add a computer, printer, slide strainer, biohazard
hood, and FACS wash assistant to CPT code 88184. Add a computer and
printer to the equipment for CPT code 88185.

[[Page 45779]]

Low Osmolar Contrast Media (LOCM) and High Osmolar Contrast
Media (HOCM)
HOCM and LOCM are used to enhance images produced by various types
of diagnostic radiological procedures. In the November 15, 2004 final
rule (69 FR 66356), we eliminated the criteria for the payment of LOCM
that had been included at Sec. 414.38. Effective January 1, 2005,
providers can be paid for either LOCM or HOCM when used with procedures
requiring contrast media. Payment for LOCM is made through the use of
separate Q-codes, while payment for HOCM is currently included as part
of the PE component under the PFS. Effective January 1, 2006, we will
no longer include payment for HOCM under the PFS. When HOCM is used, Q-
codes that have been established specifically for HOCM will be used for
payment.
We have reviewed the PE database and are proposing to remove the
following two supply items which we have identified as HOCM from the PE
database:
+ Conray inj. iothalamate 43 percent(supply item SH026,
deleted from 64 procedures).
+ Diatrizoate sodium 50 percent (supply item SH0238,
deleted from 74 procedures).
In reviewing the PE database we also identified 5 CPT codes
(specifically CPT codes 42550, 70370, 93508, 93510 and 93526) that
include omnipaque as a supply item. Since omnipaque is actually a type
of LOCM that is separately billable, we are proposing to remove this
supply item from these five CPT codes.
Imaging Rooms
We include standardized ``rooms'' for certain services in our PE
equipment database, rather than listing each item separately. We
received pricing information from the ACR for the following rooms that
are included in the database. We have accepted most of the proposed
items that meet the $500 threshold for equipment and are proposing to
include the items in each specific room, as follows:
codes assigned this room have also been assigned an alternator
(automated film viewer) or a 4-panel viewbox.
because most codes assigned this room have also been assigned an
alternator (automated film viewer) or a 4-panel viewbox.
mammography reporting system, sensitometer, mammography phantom,
desktop computer, and the film processor) that duplicated items
included in the mammography room were removed from the codes assigned
the room, eliminating the reporting system, sensitometer and phantom
from the PE database.
+ Computed tomography (CT) Room: $1,284,000 (16-slice CT scanner
with power injector and monitoring system)
+ Magnetic Resonance (MR) Room: $1,605,000 (1.5T MR scanner with
power injector and monitoring system)
Equipment Pricing for Select Services and Procedures from
the November 15, 2004 final rule (69 FR 66236).
Equipment pricing for certain radiology services was received and
supported with sufficient documentation from the ACR. We have accepted
the following equipment prices as shown in table 15.

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

------------------------------------------------------------------------
CAD processor (CPT 76082-83)................................. $115,000
Collimator, cardiofocal set (CPT 78206-07, 78647, 78803, 8,543
78807)......................................................
Densitometer/DPA (CPT 78351)................................. 150,000
Detector Probe (CPT 78455)................................... 19,995
IVAC Injection Pump, single channel (CPT 78206-07, 78647, 3,000
78803, 78807)...............................................
Computer workstation/MRA includes: Includes 2 monitors, 122,000
volume viewer, advanced x-ray analysis, data export, CD-RW,
DICOM Print, 2 GB RAM (CPT 71555, 72159, 72198, 73225,
73727, 74185)...............................................
------------------------------------------------------------------------

We accepted the documentation supplied from the American College of
Obstetricians and Gynecologists (ACOG) to price the following equipment
for which we assigned an average price from the three sources, as
follows:

Ultrasound color Doppler transducers and vaginal probe (CPT 59070,
59074, 76818-19, 76825-28)--$157,897

For CPT 36522, extracorporeal photopheresis, we received and
accepted equipment pricing information specific to this procedure, as
follows:

Plasma pheresis machine with UV light source (CPT 36522)--$65,000

We received comments from the American Academy of Ophthalmology
that included documentation from two sources for the pricing of the EMG
botox machine used in CPT code 92265 and we are proposing to accept
$16,188 as the average price for this equipment.
Supply Item for In Situ Hybridization Codes (CPT 88365, 88367,
and 88368)
We received comments from the College of American Pathologists
(CAP) regarding the number of DNA probes assigned to the in situ
hybridization codes, CPT codes 88365, 88367, and 88368. Currently, CPT
codes 88365 and 88368 have 1.5 probes assigned, while CPT code 88367
has only .75 of a probe assigned. CAP requested that we also assign 1.5
probes to CPT code 88367, and the comment provided justification for
this request. We accept the CAP rationale and propose to change the
probe quantity for CPT code 88367 to 1.5.
Supply Item for Percutaneous Vertebroplasty Procedures (CPT
codes 22520 and 22525)
The Society for Interventional Radiology provided us with
documentation for the price of the vertebroplasty kit used in CPT codes
22520 and 22525. We propose to accept a new price of $696 for this
supply, currently listed as $660.50, a placeholder price from last
year's final rule.
Clinical Labor for G-codes Related to Home Health and Hospice
Physician Supervision, Certification and Recertification
It has come to our attention that four G-codes related to home
health and hospice physician supervision, certification and
recertification, G0179, 180, 181, and 182, are incorrectly valued for
clinical labor. These codes are cross-walked from CPT codes 99375 and
99378, which underwent PEAC refinement for the 2004 fee schedule.
However, we did not apply the new refinements to these specific G-codes
at that time, and are proposing to revise the PE database to reflect
the new values.
Programmers for Implantable Neurostimulators and Intrathecal
Drug Infusion Pumps
We received comments from the neurological division of Medtronic
Incorporated, the manufacturer of programmers for implantable
neurostimulators and intrathecal drug infusion pumps, that the
equipment

[[Page 45780]]

costs for these programmers are not a direct expense for the physicians
performing the programming of these devices. The manufacturer furnishes
these devices without cost because the programming device is considered
a ``necessary, ancillary item to the neurostimulator and drug pump and
can only be used to program these devices.'' As such, we are proposing
to remove the two programmers from the PE database: EQ208 for
medication pump from 2 codes (CPT 62367 and 62368) and EQ209 for the
neurostimulator from 8 codes (CPT 95970-97979). We are asking for
comments from the specialty societies performing these services to let
us know if this proposal reflects typical practice.
Pricing of New Supply and Equipment Items
As part of last year's rulemaking process, we reviewed and updated
the prices for equipment items in our PE database and assigned a unique
identifier to each equipment item with the first two elements
corresponding to one of seven categories. It has come to our attention
that we have assigned the same category identifier (ELXXX) for both
``lanes/rooms'' as well as ``laboratory equipment''. To correct this,
we are assigning laboratory equipment items the new category identifier
``EPXXX'', but the specific numbers associated with each item will
remain the same. Supply items were reviewed and updated in the
rulemaking process for the 2004 PFS. During subsequent meetings of both
the PEAC (now referred to as the PERC) and the RUC, supply and
equipment items were added that were not included in the pricing
updates. The following two tables (Table 16: Proposed Practice Expense
Supply Items and Table 17: Proposed Practice Expense Equipment Items)
list the additional supply and equipment items for 2006 and the
proposed associated prices that we will use in the PE calculation.

Table 16.--Proposed Practice Expense Supply Item Additions for 2006
----------------------------------------------------------------------------------------------------------------
Unit *CPT code(s) associated
Supply code Supply description Unit price with item Supply category
----------------------------------------------------------------------------------------------------------------
SJ071............. ACD-A anticoagulant... item...... 6.58 36514, 36515, 36516 Pharmacy, NonRx.
SL186............. Antibody, flow item...... 8.5 88184, 88185 Lab.
cytometry (each test).
SL187............. Balance salt solution ml........ ......... 92265 Lab.
(BSS), sterile, 15cc.
SG093............. Bandage, Dome paste, item...... 14.95 29580 Wound care,
3in. dressings.
SJ072............. Brush, disposable item...... ......... 17360 Pharmacy, NonRx.
applicator.
SG094............. Cast, padding 3in x item...... 1.22 18 codes Wound care,
4yd (Webril). dressings.
SG095............. Cast, sole............ item...... 14.74 29355, 29425, 29440 Wound care,
dressings.
SG096............. Casting tape, item...... 9.2 29065, 29075, 29105, 29365, Wound care,
fiberglass 3in x 4 29405, 29425 dressings.
yds.
SD216............. Catheter, balloon, item...... 217.00 91120, 91040 Accessory,
esophageal or rectal Procedure.
(graded distention
test).
SK102............. Communication book/ item...... ......... 92510 Office supply,
treatment notebook. grocery.
SB049............. Condom, Diapulse, item...... 0.69 G0329 Gown, drape.
Asepticap.
SK103............. Cork sheet, 1cm x 1cm. item...... ......... 88355 Office supply,
grocery.
SD217............. Diaphragm fitting set. item...... ......... 57170 Accessory,
Procedure.
SJ073............. DMV remover........... item...... ......... 92311, 92312, 92313, 92314, Pharmacy, NonRx.
92315, 92317, 92316, 92310
SL188............. EM fixative, ml........ 0.086 88355, 88356 Lab.
karnovsky's.
SL189............. Ethanol, 100%......... ml........ 0.003 88365, 88367, 88368 Lab.
SL190............. Ethanol, 70%.......... ml........ 0.003 88367, 88368, 88365 Lab.
SL191............. Ethanol, 85%.......... ml........ 0.003 88368, 88367, 88365 Lab.
SC088............. Fistula set, dialysis, item...... ......... 36522 Hypodermic, IV.
17g.
SK104............. Foil, aluminum, 10cm x item...... ......... 88355 Office supply,
10cm. grocery.
SL192............. Formamide............. ml........ 0.22 88368, 88365, 88367 Lab.
SL193............. Glycolic acid, 20-50%. ml........ ......... 17360 Lab.
SL194............. Hemo-De............... ml........ 0.008 88368, 88367, 88365 Lab.
SA089............. Kit, boston original kit....... 4.5 92311, 92315, 92310, 92313, Kit, Pack, Tray.
system. 92313, 92314, 92317, 92316
SL195............. Kit, FISH paraffin kit....... 20.85 88367, 88368, 88365 Lab.
pretreatment.
SL196............. Kit, HER-2/neu DNA kit....... 105.00 88367, 88368 Lab.
Probe.
SA090............. Kit, moulage kit....... 75.00 19396 Kit, Pack, Tray.
(implantech).
SL197............. Label for blood tube.. item...... 0.004 36516, 36515, 36514 Lab.
SL198............. Label, vial........... item...... 0.003 88355 Lab.
SJ074............. Lens cleaner.......... ounce..... ......... 92342, 92313, 92340, 92341 Pharmacy, NonRx.
SL199............. Lithium carbonate, ml........ ......... 88355, 88356 Lab
saturated.
SH092............. LMX 4% anesthetic gm........ 1.6 96567 Pharmacy, Rx.
cream.
SJ075............. Methoxsalen, 10ml vial item...... 49.5 36522 Pharmacy, NonRx.
SF044............. Micro air burr........ item...... ......... 28755, 28750, 28740, 28760 Cutters,
closures,
cautery
SC089............. Needle, Vacutainer.... item...... 0.32 36514, 36515, 36516 Hypodermic, IV.
SJ076............. Nose pads............. item...... ......... 92370 Pharmacy, NonRx.
SG092............. Packing, gauze, plain, item...... ......... 57180 Wound care,
1 in (5 yd uou). dressings.
SJ077............. Screws, spectacles.... item...... 0.14 92370 Pharmacy, NonRx.
SL200............. Sodium bicarbonate item...... ......... 17360 Lab.
spray, 8 oz.
Splint, fiberglass, item...... 16.5 29125 Wound care,
4in x 15in. dressings.
SL201............. Stain, eosin.......... ml........ 0.044 88356, 88355 Lab.
SJ078............. Temple tips........... pair...... 1.00 92370 Pharmacy, NonRx.
SL202............. Tissue conditioner, item...... ......... 42280 Lab.
coesoft.
SA091............. Tray, scoop, fast item...... 750.00 31730 Kit, Pack, Tray.
track system.
SC090............. Tube, gastrostomy..... item...... ......... 43760 Hypodermic, IV.
SC091............. Vacutainer............ item...... 5.9 36514, 36515, 36516 Hypodermic, IV.

[[Page 45781]]

SL203............. Vial, 10 ml, plastic (- item...... 1.016 88355 Lab.
70 degree storage).
SL204............. Vial, kimble sample, item...... 0.708 88356, 88355 Lab.
non sterile glass, 20
ml.
----------------------------------------------------------------------------------------------------------------
*CPT codes and descriptions only are copyright 2004 American Medical Association. All Rights Reserved.
Applicable FARS/DFARS apply.

Table 17.--Proposed Practice Expense Equipment Item Additions for 2006
----------------------------------------------------------------------------------------------------------------
Unit *CPT code(s) associated Equipment
Equip code Equipment description Life price with item category
----------------------------------------------------------------------------------------------------------------
EQ269............. Blood pressure 5 3000 93786, 93784, 93788 OTHER EQUIP.
monitor, ambulatory.
EP044............. Centrifuge, cytospin.. 7 7330 88184 LABORATORY.
EP045............. Chamber, hybridization 7 7107 88368, 88365, 88367 LABORATORY.
EP046............. Freezer, ultradeep (- 10 16552 88355 LABORATORY.
70 degrees).
Light assembly, ......... ......... 36522 OTHER EQUIP.
photophoresis.
EP047............. Loader, FACS.......... 7 22500 88184 LABORATORY.
EP048............. Microfuge, benchtop... 7 2410 88368, 88367, 88365 LABORATORY.
0EQ270............ Plasma pheresis 6 65000 36522 OTHER EQUIP.
machine w/ UV light.
EP049............. Oven, isotemp (lab)... 10 2383 88368, 88367, 88365 LABORATORY.
EQ271............. Radiuscope............ 7 ......... 92315, 92317, 92316, 92310, OTHER EQUIP.
92314, 92313, 92312, 92311
EP050............. Scanner, AutoVysion... 5 135000 88367 LABORATORY.
EQ272............. Sleep diagnostic 5 46799 95805 OTHER EQUIP.
system, attended.
EP051............. Slide warmer.......... 7 568 88368, 88365, 88367 LABORATORY.
EP052............. Ultrasonic nebulizer.. 10 1000 89220 LABORATORY.
EP053............. Wash assistant, FACS.. 7 38000 88184 LABORATORY.
EP054............. Water bath, FISH 7 2111 88367, 88365 LABORATORY.
procedures (lab).
----------------------------------------------------------------------------------------------------------------
*CPT codes and descriptions only are copyright 2004 American medical Association. All Rights Reserved.
Applicable FARS/DFARS apply.

Supply and Equipment Items Needing Specialty Input
We have identified certain supply and equipment items for which we
were unable to verify the pricing information (see Table 18: Supply
Items Needing Specialty Input for Pricing and Table 19: Equipment Items
Needing Specialty Input for Pricing). During last year's rulemaking, we
listed both supply and equipment items for which pricing documentation
was needed from the medical specialty societies and, for many of these
items, we received sufficient documentation in the form of catalog
listings, vendor websites, and invoices. We have accepted the
documented prices for many of these items and have already incorporated
them into the PE database. The items listed on Tables 18 and 19
represent the outstanding items from last year and new items added from
the RUC recommendations. Therefore, we are requesting that commenters,
particularly specialty organizations, provide pricing information on
items in these tables along with documentation to support the
recommended price.

Table 18.--Supply Items Needing Specialty Input for Pricing
--------------------------------------------------------------------------------------------------------------------------------------------------------
Unit Primary specialties *CPT code(s) associated
Code 2005 Description Unit Price associated with item with item Status of item
--------------------------------------------------------------------------------------------------------------------------------------------------------
SK105.................. Blood pressure Item............ 0.31 Cardiology............ 93784, 93786, 93788 See Note A.
recording form,
average.
SJ072.................. Brush, disposable Item............ ......... Dermatology........... 17360 See Note A.
applicator.
SK102.................. Communication book/ Item............ ......... Audiology, ENT........ 92510 See Note A.
treatment note book.
SK103.................. Cork sheet, 1 cm x 1 Item............ ......... Pathology............. 88355 See Note A.
cm.
SJ073.................. DMV remover........... Item............ ......... Optometry, 92310-92317 See Note A.
Opthalmology.
SD217.................. Diaphragm fitting set. Item............ ......... Ob-gyn................ 57170 See Note A.
SD053.................. Electrode, EEG, tin Item............ ......... Neurology............. 95812-13, 95816, 95819, See Note A.
cup (12 pack uou). 95822, 95950, 95954, 95956
SC088.................. Fistula set, dialysis, Item............ ......... Dermatology........... 36522 See Note A
17g.
SK104.................. Foil, aluminum, 10 cm Item............ ......... Pathology............. 88355 See Note A.
x 10 cm.
SL193.................. Glycolic acid, 20-50%. ml.............. ......... Dermatology........... 17360 See Note A.
SA090.................. Kit, moulage Item............ 75.00 Ob-Gyn................ 19396 See Note A.
(implantech).
SJ074.................. Lens cleaner.......... oz.............. ......... Optometry, 92313, 92341, 92342 See Note A.
Opthalmology.

[[Page 45782]]

SL199.................. Lithium carbonate, ml.............. ......... Pathology............. 88355, 88356 See Note A.
saturated.
SF044.................. Micro air burr........ Item............ ......... Podiatry, Orthopedics. 28740, 28750, 28755, 28760 See Note A.
SJ076.................. Nose pads............. Item............ ......... Optometry............. 92370 See Note A.
SG092.................. Packing, gauze, plain, Item............ ......... Ob-Gyn................ 57180 See Note A.
1 in (5yd uou).
SH087.................. Pentagastrin.......... ml.............. ......... Gastroenterology...... 91052 See Note A.
SD140.................. Pressure bag.......... Item............ 8.925 Cardiology............ 93501, 93508, 93510, 93526 See Note A.
SL119.................. Sealant spray......... oz.............. ......... Radiation Oncology.... 77333 See Note A.
SL200.................. Sodium bicarbonate Item............ ......... Dermatology........... 17360 See Note A.
spray, 8 oz.
SL203.................. Tissue conditioner, Item............ ......... Maxillofacial Surgery 42280 See Note A.
coesoft. ENT.
SA091.................. Tray, scoop, fast Tray............ 750.00 ENT................... 31730 See Note A.
track system.
SD213.................. Tubing, sterile, non- Item............ 1.99 Cardiology............ 93501, 93508, 93510, 93526 See Note A.
vented (fluid
administration).
--------------------------------------------------------------------------------------------------------------------------------------------------------
*CPT codes and descriptions only are copyright 2004 American Medical Association. All Rights Reserved. Applicable FARS/DFARS apply.
Note A: Additional information required. Need detailed description (including kit contents), source, and current pricing information (including pricing
per specified unit of measure in database).

Table 19.--Equipment Items Needing Specialty Input for Pricing and Proposed Deletions
--------------------------------------------------------------------------------------------------------------------------------------------------------
Primary specialties * CPT code(s) associated
Code 2005 Description Price associated with item with item Status of item
--------------------------------------------------------------------------------------------------------------------------------------------------------
EQ269.................... Ambulatory blood 3,000.00 Cardiology............. 93784, 93786, 93788 See Note A.
pressure monitor.
EQ089.................... cortical bipolar- .............. Neurosurger, neurology. 95961, 95962 See Note A.
biphasic stimulating
equipment.
EQ091.................... Cryo-thermal unit....... .............. Anesthesia............. 64620 See Notes A and C.
ER025.................... densitometry unit, whole 22,500.00 Radiology.............. 78350 See Notes A and C.
body, SPA.
EQ100.................... dialysis access flow 10,000.00 Nephrology............. 90940 See Note A.
monitor.
EQ101.................... diathermy, microwave.... .............. anesthesia, GP, 97020 See Notes A and C.
podiatry.
EQ008.................... ECG signal averaging 8,250.00 Cardiology, IM......... 93278 See Note A.
system.
EQ112.................... electromagnetic therapy 25,000.00 Physical therapy....... G0329 See Note A.
machine.
EQ122.................... fetal monitor software.. 35,000.00 ob-gyn, radiology...... 76818, 76819 See Note A.
ER029.................... film alternator 27,500.00 Radiology.............. 329 codes See Notes A and B.
(motorized film
viewbox).
EQ124.................... generator, constant 950.00 Neurology, NP.......... 95923 See Note A.
current.
EQ131.................... hyperbaric chamber...... 125,000.00 FP, IM, EM............. 99183 See Note A.
ER036.................... hyperthermia system, 250,000.00 radiation oncology..... 77620 See Note A.
ultrasound,
intracavitary.
Light assembly, .............. Dermatology............ 36522 See Note A.
photopheresis.
ER045.................... orthovoltage 140,000.00 radiation oncology..... 77401 See Note A.
radiotherapy system.
ER008.................... OSHA ventilated hood.... 5,000.00 radiation oncology..... 77334 See Notes A and B.
plasma pheresis machine 37,900.00 radiology, dermatology. 36481, G0341 See Note A.
w/UV light source.
EQ208.................... Programmer, for 1,975 anesthesiology, 62367 and 62368 See Note D.
implanted medication physical medicine.
pump (spine).
EQ209.................... Programmer, 1,975 neurology, neuro 95970, 95971, 95972, 95973, See Note D.
neurostimulator (w- surgery, 95974, 95975, 95978, 95979
printer). anesthesiology.
EQ212.................... pulse oxymetry recording 3,660.00 Pulmonary disease, IM.. 94762 See Note A.
software (prolonged
monitoring).
EP055.................... Slide Stainer........... 9,291.00 Pathology.............. 88184 See Note A.
EQ271.................... Radiuscope.............. .............. ophthalmology, 92310--92317 See Note A.
optometry.
EQ220.................... remote monitoring 9,500.00 Neurology.............. 95955 See Note A.
service
(neurodiagnostics).
EQ221.................... review master........... 23,500.00 pulmonary disease, 95805, 95807-11, 95816, See Note A.
neurology. 95822, 95955-56

[[Page 45783]]

EF022.................... table, cystoscopy....... .............. Urology................ 52204-24, 52265-75, 52310- See Note A.
17, 52327-32
EQ253.................... ultrasound, 29,900.00 ob-gyn, cardiology, 76825-28, 93303-12, 93314, See Note A.
echocardiography pediatrics. 93320, 93325, 93350
digital acquisition
(Novo Microsonics,
TomTec).
EQ261.................... vacuum cart............. .............. anesthesia............. 64620 See Notes A and C
EP054.................... Wash assistant, FACS.... 38,000.00 pathology.............. 88184 See Note A.
--------------------------------------------------------------------------------------------------------------------------------------------------------
*CPT codes and descriptions only are copyright 2004 American Medical Association. All Rights Reserved. Applicable FARS/DFARS apply.
Notes:
A. Additional information required. Need detailed description (including system components as specified), source, and current pricing information.
B. Proposed deletion as indirect expense.
C. Item may no longer be available.
D. Proposed deletion as supplied to physicians at no cost.

B. Geographic Practice Cost Indices (GPCIs)

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

Section 1848(e)(1)(A) of the Act requires us 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(1)(E) of the Act, as amended by section 412 of the
MMA, 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
was used for purposes of payment for services furnished on or after
January 1, 2004 and before January 1, 2007. This 1.0 floor will remain
in effect in 2006.
Section 602 of the MMA added section 1848(e)(1)(G) of the Act,
which sets a floor of 1.67 for the work, practice expense, and
malpractice GPCIs for services furnished in Alaska between January 1,
2004 and December 31, 2005 for any locality where the GPCI would
otherwise fall below 1.67. Effective January 1, 2006, this provision
will end and the proposed 2006 GPCIs for Alaska will be 1.017 for
physician work, 1.103 for PE, and 1.029 for malpractice.
Payment Localities
In the August 15, 2004 PFS rule proposed rule, we discussed the
issue of changes to the GPCI payment localities (69 FR 47504). In that
proposed rule, we noted that we look for the support of a State medical
society as the impetus for changes to existing payment localities.
Because the GPCIs for each locality are calculated using the average of
the county-specific data from all of the counties in the locality,
removing high-cost counties from a locality will result in lower GPCIs
for the remaining counties. Therefore, because of this redistributive
impact, we have refrained, in the past, from making changes to payment
localities unless the State medical association provides evidence that
any proposed change has statewide support.
In the November 15, 2004 PFS final rule, we discussed a
``placeholder'' proposal submitted to us in comments received from the
California Medical Association (CMA) (69 FR 66263). The proposal
described in CMA's comment would move any county with a county-specific
geographic adjustment factor (GAF) that is at least 5 percent greater
than its locality GAF to its own individual county payment locality.
(The GAF is the weighted average of the GPCIs for each locality. The
GPCIs are weighted by the same weighting factors applied to physician
work, practice expense, and malpractice in the Medicare Economic Index
(MEI) used to update the CF.) However, in order to minimize reductions
in the 2005 GAF of the Rest of California locality that would otherwise
result from removal of the data for these high-cost counties, the CMA
proposed maintaining Rest of California locality payments at the 2004
level by redistributing payments from the existing (and newly created)
payment localities.
On October 21, 2004, the CMA Board of Trustees voted without
objection to support the placeholder proposal with the amendment that
the redistribution of payments designed to maintain 2004 levels of
payment for the Rest of California payment locality would occur for two
years only, in 2005 and 2006. However, we determined that we do not
have the authority under section 1848(e) of the Act to modify the GPCIs
of some localities in a State solely in order to offset higher payments
to other localities.
After the publication of the November 15, 2004 PFS final rule, the
CMA submitted a proposal for a demonstration project that was the same
as its proposal discussed in that final rule. There were several
aspects of the proposal that made implementation problematic for us
under our demonstration authority. For example, physicians whose
payments would decrease under the demonstration could challenge the
validity of a new locality configuration established without providing
them the opportunity to comment through the regulatory process (as is
our normal process for making locality changes). In particular,
physicians who are not members of county medical societies or the CMA
did not agree to participate in the proposed demonstration, and some of
them may have challenged its implementation.
Also, the Medicare PFS currently uses identical GPCIs to pay for
services provided in an area by both physicians and nonphysician
providers such as podiatrists, optometrists, physical therapists, and
nurse practitioners (NPs). Changing the locality configuration for
medical doctors and doctors of osteopathic medicine, but not for other
professionals, would have some peculiar results that were not addressed
in the CMA proposal. For example, in areas where the GPCIs would be
reduced under the demonstration, some practitioners not

[[Page 45784]]

participating under the demonstration (such as physical therapists)
could be paid more than physicians in the same locality. Conversely,
where the GPCIs would be increased under the demonstration, there would
likely be complaints from the nonphysician practitioners (NPP) not
included in the demonstration.
Nonetheless, we do recognize the potential impact of wide
variations in the practice costs within a single payment locality. In
last year's PFS final rule, we noted that we received many comments
from physicians and individuals in Santa Cruz County expressing the
opinion that Santa Cruz County should be removed from the Rest of
California payment locality and placed in its own payment locality. The
county-specific GAF of Santa Cruz County is 10 percent higher than the
Rest of California locality GAF. Santa Cruz County is adjacent to Santa
Clara County and San Mateo County. Santa Clara and San Mateo Counties
have two of the highest GAFs in the nation. The published 2006 GAF for
the Rest of California payment locality is 24 percent less than the
GAFs of Santa Clara and San Mateo.
Sonoma County is also part of the Rest of California payment
locality. The county-specific GAF of Sonoma County is 8 percent higher
than the Rest of California locality GAF. Sonoma County is bordered by
Marin County and Napa County. Using published 2006 values, the payment
locality that includes Marin and Napa counties has the fourth highest
GAF in the nation, and is 13 percent higher than the GAF of the Rest of
California payment locality.
We recognize that changing demographics over time may lead to
payment disparities in particular circumstances. We rely upon State
medical societies to identify and resolve these disparities because
there are redistributive impacts within a State when new localities are
created (or existing ones reconfigured). Yet we also recognize that CMS
is ultimately responsible for establishing fee schedule areas. We have
considered a number of alternative locality configurations including--
The CMA approach which calculates county-specific GAFs,
and compares them to their locality GAF and designating any county with
a GAF at least 5 percent higher than its locality GAF as a new
locality;
An approach that sorts counties by descending GAFs and
compares the highest county to the second highest county. If the
difference between these two counties is 5 percent or less, they are
included in the same locality. The third highest county GAF is then
compared to the highest county GAF and so on, until the next county GAP
is not within 5 percent of the highest county GAF. At that point, the
county GAF that is more than 5 percent lower than the highest county
GAF becomes the comparison for the next lowest county GAF, to create a
second locality. This process is repeated down throughout all of the
counties;
An approach that compares the county with the highest GAF
to the statewide average, removing counties that are 5 percent or more
than the statewide average; and
An approach that uses Metropolitan Statistical Ares
defined by the Office of Management and Budget.
However, because these reconfigurations would result in significant
redistributions across most California counties, we are simply
proposing that Santa Cruz and Sonoma Counties (the two counties with
the most significant disparity between the assigned Rest of California
GAF and the county-specific GAF) be removed from the Rest of California
payment locality and that each would be its own payment locality. We
invite comments regarding this proposal and possible alternative
approaches to address this issue. We are particularly interested in
whether the CMA supports this approach.
If implemented, our proposal would change the 2006 GPCIs and GAFs
for Santa Cruz County, Sonoma County and the Rest of California. The
Santa Cruz GAF would be 1.119, a value 10 percent above the 2005 Rest
of California GAF. The Sonoma County GAF would be 1.098, a value 8
percent above the 2005 Rest of California GAF. The Rest of California
GAF would be 1.011, a value 0.01 percent below the 2005 Rest of
California GAF. We would note that the 2006 Rest of California GAF
published in the November 15, 2004 PFS final rule (69 FR 66695) was
1.017. This represents the second year of the transition to the new
GPCIs and GAFs incorporating updated data (69 FR 66260). The proposed
2006 Rest of California GAF of 1.011 fully reflects incorporating the
updated data.
The issue of payment locality designation in light of changing
economic and population trends will be of importance to us for the
foreseeable future. We are interested in other solutions to the
problem, and will work with anyone who presents an idea or makes a
suggestion that will help resolve the problems associated with the
designation and revision of payment localities.

C. Malpractice Relative Value Units (RVUs)

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

As discussed in the Revisions to Payment Policies Under the
Physician Fee Schedule for Calendar Year 2005 final rule, published
November 15, 2004 (69 FR 66236), we revised the resource-based
malpractice expense RVUs using specialty-specific malpractice premium
data because those data represent the actual malpractice expense to the
physician and are widely available. Based upon discussions with the
medical community, we concluded that the primary determinants of
malpractice liability costs are physician specialty, level of surgical
involvement, and the physician's malpractice history.
Malpractice premium data were collected for the 20 Medicare
physician specialties with the largest share of malpractice RVUs. We
collected data based on premiums for a $1 million/$3 million mature
claims-made policy (a policy covering claims made, rather than services
provided during the policy term). We collected 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). The premium data collected represented at least 50
percent of total physician malpractice premiums paid in each State. For
a more detailed description of the methodology utilized in the
development of resource based malpractice RVUs, refer to the November
15, 2004 final rule.
1. Five Percent Specialty Threshold
As discussed in the November 15, 2004 final rule, we are concerned
that the malpractice RVUs could be inappropriately inflated or deflated
due to aberrant data based upon incorrectly reported specialty
classifications. Therefore, we examined the impact of establishing a
minimum percentage threshold for any procedure performed by any
specialty before the risk factor of that specialty is included in the
malpractice RVU calculation of a particular code.
We conducted an analysis excluding data for any specialty that
performs less than 5 percent of a particular service or procedure from
the malpractice RVU calculation for that service or procedure. The
purpose of applying the minimum threshold was to identify and remove
from the data specialties listed infrequently as performing a certain
procedure. The assumption was that the

[[Page 45785]]

infrequent instances of these specialties in our data represent
aberrant occurrences and removing the associated risk factor from the
malpractice RVU calculation would improve accuracy and stability of the
RVUs.
We excluded evaluation and management (E&M) services from the
analysis. Medicare claims data show that E&M codes are performed by
virtually all physician specialties. Therefore, in the case of E&M
codes, it is likely that even the low relative percentages of
performance by some specialties would accurately represent the
provision of the service by those specialties.
For all services other than E&M services, we believe removing data
attributable to specialties that occur in our data less than 5 percent
of the time would most appropriately balance the objective to identify
aberrant data (claims with a specialty identified that is highly
unlikely to have performed a particular procedure) while including
specialties that perform a procedure a small percentage of the time. We
believe a higher threshold would result in the removal of data for
specialties actually performing the procedure, while a lower threshold
would likely fail to remove some aberrant data, particularly for low-
volume codes (fewer than 100 occurrences, where each claim represent 1
or more percentage points).
The overall impact of removing the risk factor for specialties that
occur less than 5 percent of the time in our data for a procedure is
minimal. There is no impact on the malpractice RVUs for over 5,280
codes, and there is an impact of less than 1 percent on the malpractice
RVUs for over 1,300 additional codes. Only 16 codes decrease by at
least 0.1 RVUs, with the biggest decrease being a negative 0.28 impact
on the malpractice RVU for CPT code 17108, Destruction of skin lesions,
from a current RVU of 0.82 to a proposed RVU of 0.54.
Conversely, there are 219 codes for which RVUs increase by at least
0.1, the largest increase being a positive 0.81 RVU increase for CPT
code 61583, Craniofacial approach, skull, from a current RVU of 8.32 to
a proposed RVU of 9.13. Among codes whose malpractice RVUs would
increase under our proposal, 646 have increases of less than 1 percent.
The impact analysis section of this proposed rule examines the effects
of this proposed change by specialty.
2. Specialty Crosswalk Issues
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.
Medicare uses its own system of specialty classification for
payment and data purposes. Therefore, to calculate the malpractice
RVUs, it was necessary to map Medicare specialties to ISO codes and
insurer risk classes. For some physician specialties, NPP, and other
entities (for example, IDTFs) paid under the PFS, there was not a clear
ISO assignment available. In these instances, we crosswalked these
unassigned specialties to the most approximate existing ISO codes and
risk classes based upon their relationship to those specialties for
which we did have clear ISO crosswalks. The crosswalks we used to
establish the 2005 malpractice RVUs were displayed in the November 15,
2004 PFS final rule (69 FR 66268). In most instances, when an
appropriate crosswalk could not be identified we utilized the average
for all physicians category, which is a weighted average of all
specialty premium data.
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 nephrology, which is the specialty with
the lowest average premium among the 20 specialties for which data were
collected.
We stated in the November 15, 2004 PFS final rule that we would
continue to work with the AMA RUC's Professional Liability Insurance
(PLI) Workgroup to address any potential inconsistencies that may still
exist in our methodology. Based upon this commitment, the RUC PLI
Workgroup has forwarded various recommendations for our consideration.
The RUC developed its recommendations based upon comments submitted to
them by physician specialty organizations.
The RUC PLI Workgroup provided all specialty societies and the
HCPAC with the opportunity to submit comments on the crosswalks listed
in the November 15, 2004 final rule. Based on the comments, the
Workgroup believes the risk factors assigned to certain professions
overestimate the insurance premiums for these professions. We
crosswalked clinical psychology, licensed clinical social work, and
psychology to the nonsurgical risk factor for psychiatry (risk factor
of 1.11). We crosswalked occupational therapy to occupational medicine
(risk factor of 1.11). The PLI Workgroup recommends crosswalking these
professions to allergy and immunology, with a risk factor of 1.00
(although the Workgroup suggests the actual risk factor for these
professions may be below the risk factor for allergy and immunology and
encourages the collection of malpractice premium data for these
professions).
The Workgroup also believes that opticians and optometrists should
be assigned this risk factor of 1.0, as opposed to being crosswalked to
ophthalmology (nonsurgical risk factor of 1.24, surgical risk factor of
2.31). The Workgroup further suggests that it would be more appropriate
to assign the risk factor of 1.0 to the chiropractic and physical
therapy specialties rather than their current crosswalk to physical
medicine and rehabilitation (nonsurgical and surgical risk factors of
1.26). The Workgroup felt that these specialties will not incur PLI
premiums in excess of the current base premiums associated a risk
factor of 1.0.
We examined the risk factors assigned to these professions, and
agree that the PLI associated with them should reflect the lowest
physician specialty risk factor (absent actual premium data for these
professions). Therefore, we propose assigning these specialties a risk
factor of 1.00. We invite comment from representatives of the affected
specialties and others regarding the appropriateness of this proposal,
as well as other specialty crosswalks and suggestions for reliable
sources of actual malpractice premium data for nonphysician groups.
The RUC PLI Workgroup also felt that a number of professions that
were assigned to the average for all physicians risk factor should be
removed from the calculation of malpractice RVUs altogether. The PLI
Workgroup believes that it would be more appropriate to exclude data
from the following professions: Certified clinical nurse specialist
(CNS), clinical laboratory, multispecialty clinic or group practice,
NP, physician assistant (PA), and physiological laboratory
(independent). In calculating the malpractice RVUs applicable for 2005,

[[Page 45786]]

34 Medicare specialties were excluded from the calculation because they
could not be otherwise assigned or crosswalked. The RUC recommends the
above specialties and professions be similarly excluded. We agree and
propose to establish malpractice RVUs based upon the mix of specialties
exclusive of the above specialties and professions.
The PLI Workgroup also made the following recommendations that we
are not accepting: Certified registered nurse anesthetists (CRNAs)
should be crosswalked to anesthesiology which is 2.84 rather than to
the ``all physicians'' which is 3.04; colorectal surgeons should be
crosswalked to general surgery (the current risk factor is based on
actual data); and gynecologists and oncologists (currently 5.63) should
be crosswalked to surgical oncology (currently 6.13). We believe the
current crosswalks we are using for these specialties appropriately
reflect the types of services they provide. However, we would welcome
comments on these proposals as well.
3. Cardiac Catheterization and Angioplasty Exception
In response to a comment received on our proposed methodology at
the time, in the November 2, 1999 final rule (64 FR 59384), we applied
surgical risk factors to the following cardiology catheterization and
angioplasty codes: 92980 to 92998 and 93501 to 93536. This exception
was established because these procedures are quite invasive and more
akin to surgical than nonsurgical procedures.
In the November 15, 2004 final rule (69 FR 66275), we discussed
changes in those codes that would fall under the exception. Based on a
recommendation by the RUC, we revised the list of codes to which this
exception applies. The RUC's PLI Workgroup requests that we correct a
clerical error made by the RUC in identifying those codes that would
fall under the exception. We agree with the RUC PLI Workgroup
recommendation and propose that the following CPT codes be added to the
existing list of codes under the exception: 92975; 92980 to 92998; and
93617 to 93641.
4. Dominant Specialty for Low-Volume Codes
The final recommendation from the PLI Workgroup is to use the
dominant specialty approach for services or procedures with fewer than
100 occurrences. The Workgroup supplied a list of 1,844 services for
our review and recommends that we utilize only the dominant specialty
in calculating the final malpractice RVUs for these services. The PLI
Workgroup worked in conjunction with various specialty organizations to
identify the dominant specialty that performs each service.
We recognize and appreciate the efforts of the Workgroup to review
these codes. We have considered the data that was presented to us and
the argument for using the dominant specialty to establish the
malpractice RVUs for these 1,844 codes.
We have previously registered our concerns with the dominant
specialty approach. We believe that basing payment on all specialties
that perform a particular service ensures that the actual PLI costs of
all specialties are included in the calculation of the malpractice
RVUs. Therefore, we do not believe it would appropriate, even for these
low-volume services, to include only the dominant specialty if other
specialties regularly provide the service.
However, as noted previously in our proposal to remove data for
specialties that make up less than 5 percent of the total volume for
that service, we also recognize the need to take steps to minimize the
risk that aberrant data would inappropriately skew the malpractice RVU
calculation. We believe that, for most services, the proposal to remove
specialties making up less than 5 percent of the occurrences will
ensure that aberrant data are removed. Yet for those services with
especially low volumes, the malpractice RVUs may be especially
susceptible to the influence of aberrant data in only a very few cases
(but more than 5 percent, that is, 2 cases in a service with 20
occurrences). We will continue to evaluate ways to ensure these low-
volume services are not skewed by a few occurrences of aberrant data,
but we are concerned that including only the dominant specialty
performing these services would exclude data from other specialties
that are actually performing them.
We are not proposing to adopt this methodology at this time. We
would note that low volume procedures or services are not necessarily
performed by only one specialty. As noted above, we would distinguish
between excluding data presumed to be erroneous from data reflecting
utilization by specialties that perform a service but are not the
dominant specialty. However, we acknowledge that there may be instances
where aberrant data exist that would not be identified and removed by
our proposed 5 percent threshold discussed previously. We will continue
to work with the RUC PLI Workgroup examine this issue in the future.

D. Medicare Telehealth Services

[If you choose to comment on issues in this section, please include the
caption ``TELEHEALTH'' at the beginning of your comments.]
1. Requests for Adding Services to the List of Medicare Telehealth
Services
Section 1834(m) of the Act defines telehealth services as
professional consultations, office and other outpatient visits, and
office psychiatry services identified as of July 1, 2000 by CPT codes
99241 through 99275, 99201 through 99215, 90804 through 90809, and
90862. In addition, the statute 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 December 31, 2002 Federal Register (67 FR 79988), we
established a process for adding or deleting services to the list of
Medicare telehealth services. This process provides the public an
ongoing opportunity to submit requests for adding services. We assign
any request to make additions 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 for 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.
Since establishing the process, we have added the psychiatric
diagnostic interview examination and ESRD services with 2 to 3 visits
per month and 4 or more visits per month to the list of Medicare
telehealth services (although we require at least one visit a month by
a physician, CNS, NP, or PA to examine the vascular access site).

[[Page 45787]]

Requests for adding services to the list of Medicare telehealth
services must be submitted and received no later than December 31st of
each CY to be considered for the next proposed rule. For example,
requests submitted before the end of CY 2004 are considered for the CY
2006 proposed rule. For more information on submitting a request for an
addition to the list of Medicare telehealth services, visit our Web
site at http://www.cms.hhs.gov/physicians/telehealth.

2. Submitted Requests for Addition to the List of Telehealth Services
We received the following public requests for additional approved
services in CY 2004: (1) Diabetes outpatient self-management training
services and medical nutritional therapy; and (2) modification of the
definition of an interactive telecommunications system for purposes of
furnishing a telehealth service. The following is a discussion of the
requests submitted in CY 2004.
a. Medical Nutrition Therapy and Diabetes Self-Management Training
The American Telemedicine Association (ATA) and an individual
practitioner submitted a request to add medical nutrition therapy (MNT)
(as represented by HCPCS codes G0270, G0271 and 97802 through 97804)
and diabetes outpatient self-management training services (DSMT) (as
defined by HCPCS codes G0108 and G0109). The requestors believe that
MNT and DSMT are similar to the services currently on the list of
Medicare telehealth services and, therefore, should be added to the
list of Medicare telehealth services.

CMS Review

Section 1861(s)(2) of the Act authorizes coverage and payment of
MNT for certain beneficiaries who have diabetes or a renal disease.
Individual MNT typically involves obtaining a nutrition history,
counseling, the formulation of a treatment plan, implementation of a
treatment plan through discussion with the patient, and follow-up with
the patient. These components would be comparable to E&M office or
other outpatient visits which are currently Medicare telehealth
services. Additionally, the interactive dynamic of individual MNT is
similar in nature to an E&M office visit because the nutrition
professional is able to have a direct one-on-one discussion with the
beneficiary and the beneficiary is able to ask immediate questions
regarding his or role in following the treatment plan. Therefore, we
propose to add individual MNT as represented by HCPCS codes G0270,
97802 and 97803 to the list of Medicare telehealth services.

Practitioners Who May Furnish Medical Nutrition Therapy Services

Section 1834(m) of the Act specifies that practitioners defined in
section 1842(b)(18)(C) of the Act may receive payment for furnishing
telehealth services at the distant site. Effective January 1, 2002,
section 1842(b)(18)(C) of the Act includes a registered dietitian or
nutrition professional as a Medicare practitioner. As a condition of
Medicare Part B payment, the statute allows only a registered dietitian
or nutrition professional to furnish medical nutrition therapy services
(subject to referral made by the treating physician) for the purpose of
managing diabetes or renal disease. Medicare practitioners who are not
a licensed or certified registered dietitian or other nutrition
professional, as defined in Sec. 410.134, may not furnish and receive
payment for MNT services.
We propose to revise Sec. 410.78 and Sec. 414.65 to include
individual MNT as a Medicare telehealth service. Additionally, since a
certified registered dietitian or other nutrition professional are the
only practitioners permitted by law to furnish MNT, we propose to
revise Sec. 410.78 to add a registered dietitian and nutrition
professional as defined in Sec. 410.134 to the list of practitioners
that may furnish and receive payment for a telehealth service.

Group Medical Nutritional Therapy (MNT)

We believe that group counseling services have a different
interactive dynamic between the physician or practitioner at the
distant site and beneficiary at the originating site as compared to the
current list of Medicare telehealth services. We do not currently have
other group counseling services as telehealth services and do not
believe that group MNT falls within the first category of requests.
Category 1 requests must be similar to the current list of Medicare
telehealth services in order to be added to the list.
For instance, office and other outpatient visits, consultation and
the current office psychiatry services involve an individual
professional encounter between the physician or practitioner and
beneficiary. Through direct discussion with the beneficiary, the
physician or practitioner provides patient counseling regarding
diagnostic test results, recommendations for further studies,
prognosis, treatment options, and other follow-up instructions. In this
interactive dynamic, the patient is able to ask immediate questions and
the physician or practitioner is able to discern whether the
beneficiary understands his or her responsibilities in following the
treatment plan. However, group therapy services do not allow for the
same degree of direct patient interaction as compared with individual
therapy services.
As such, we were not able to conclude that the roles of and
interaction among the physician or practitioner at the distant site and
beneficiary at the originating site are similar to the existing
Medicare telehealth services. Furthermore, the requestors did not
submit comparative analyses illustrating that the use of a
telecommunications system is an adequate substitute for the face-to-
face delivery of group MNT services (which is a requirement for
category 2). Therefore, we propose to not add group MNT (as described
by HCPCS codes G0271 and 97804) to the list of Medicare telehealth
services. However, we invite specific public comments on whether the
use of an interactive telecommunications system is clinically adequate
for furnishing group MNT. Additionally, if the requestors were to
submit data showing that the use of a telecommunications system does
not change the diagnosis or treatment plan as compared to face-to-face
delivery, we would consider approving group MNT as a category 2
service.

Diabetes Outpatient Self-Management Training Services (DSMT)

The DSMT benefit, described at section 1861(qq) of the Act, is a
comprehensive diabetes training program (one component of which is
MNT). We consider DSMT as a category 2 request because the major
portion of DSMT is furnished in the group setting and, as explained
above, we believe group therapy has a different interactive dynamic
than the current list of Medicare telehealth services. Additionally,
the statute requires the training content for DSMT to include teaching
beneficiaries the skills necessary for the self-administration of
injectable drugs. We question the merits of providing beneficiary
training to administer insulin injections via telehealth. For example,
teaching a patient how to inject insulin requires consideration and
instruction regarding factors such as the type of needle to be used,
the anatomic location of the injection, the injection technique, and
possible complications of the injection, all of which we believe,
absent evidence to the contrary, require the physical presence of the
teaching practitioner.

[[Page 45788]]

These components are typically not part of the services currently
on the list of telehealth services and the requestor did not provide
any comparative analyses illustrating that the use of a
telecommunications system is an adequate substitute for the in-person,
collaborative, skill-based training required for DSMT services.
Therefore, we propose to not add DSMT (as described by HCPCS codes
G0108 and G0109) to the list of Medicare telehealth services.
b. Definition of an Interactive Telecommunications System
The Medical College of Georgia (MCG) requested that we modify our
definition of an interactive telecommunications system for purposes of
furnishing a telehealth consultation. The MCG uses an interactive audio
and one-way, real-time video telecommunications system, over an
internet-based protocol, to furnish consultations for acute ischemic
stroke patients. The physician at the distant site (typically a
neurologist) can see the patient; however, the patient and physician
(or practitioner) in the emergency room who is with the patient cannot
see the neurologist. Under this model, the neurologist at the distant
site examines the stroke patient in real-time video and reviews CT
scans and other critical laboratory data to assess the stroke patient's
suitability for tissue-type plasminogen activator (tPA) treatment. The
requestor noted that the use of tPA treatment is restricted to 3 hours
after onset of stroke, and argued that rapid evaluation by a
neurologist for stroke patients located in outlying rural hospitals is
crucial. The requestor believes that the use of an interactive two-way
video system does not provide added benefit to the consulting
neurologist, would be unnecessarily cumbersome, and noted that the use
of one-way video currently prohibits billing as a telehealth
consultation.

CMS Review

As noted previously, consultations are included on the list of
approved telehealth services. However, as a condition of payment, Sec.
410.78 of the regulations requires the use of an interactive two-way
audio and video telecommunications system to furnish a telehealth
consultation. The use of one-way video does not meet the current
interactive telecommunications system requirements for telehealth
services and, therefore, the requestor cannot bill for a consultation
service based on the model described above.
We have concerns with modifying our definition of an interactive
telecommunications system to permit one-way video in place of an
interactive two-way video system. The use of an interactive audio and
video telecommunications system permitting two-way real-time
interaction between the physician or practitioner at the distant site
and the beneficiary and telepresenter (if necessary) at the originating
site is a substitute for the face-to-face examination requirements of a
consultation under Medicare.
We are concerned that the use of one-way video may not be
clinically adequate for the evaluation of certain types of patients.
Since telehealth services are intended as a substitute for services
that traditionally require a face-to-face interaction between a
physician (or practitioner) and a patient, we believe that the use of a
two-way video communication is much less of a departure from this
standard than a one-way video communication, because the face-to-face
interaction between a physician and a patient allows two-way
interactive communication, both verbally and physically. We are
concerned that, without two-way video, communication of many subtle but
important nuances of the interaction between the physician at the
distant site and patient or clinical staff at the originating site
would be lost, leading to reduced diagnostic accuracy and the
possibility of unfavorable medical outcomes.
However, we recognize that a timely neurological evaluation is
critical for determining suitability for tPA treatment. Given the
potential for adverse affects, such as the increased risk of bleeding,
the decision to administer tPA (or not to administer) is crucial in
determining the course of management for the stroke patient. Therefore,
we are currently reviewing the definition of an interactive
telecommunications system and request specific public comments
regarding the added clinical value of two-way interactive video as
compared to one-way video for the purpose of furnishing telehealth
services. We are also interested in receiving comments as to whether an
interactive audio and one-way video telecommunications system that
permits the physician at the distant site to examine the patient in
real-time is clinically adequate for a broad range of specialty
consultations.
c. Definition of a Telehealth Originating Site
Section 418 of the MMA required the Health Resources Services
Administration (HRSA) within the Department of Health and Human
Services (HHS), in consultation with CMS, to conduct an evaluation of
demonstration projects under which SNFs, as defined in section 1819(a)
of the Act, are treated as originating sites for Medicare telehealth
services. The MMA also required HRSA to submit a report to the Congress
that would include recommendations on ``mechanisms to ensure that
permitting a SNF to serve as an originating site for the use of
telehealth services or any other service delivered via a
telecommunications system does not serve as a substitute for in-person
visits furnished by a physician, or for in-person visits furnished by a
PA, NP or CNS, as is otherwise required by the Secretary.'' This report
is currently under development.
The MMA provides us with the authority to include a SNF as a
Medicare telehealth originating site under section 1834(m) of the Act
effective January 1, 2006, if the Secretary concludes in the report
that it is advisable to do so and that mechanisms could be established
to ensure that the use of a telecommunications system does not
substitute for the required in-person physician or practitioner SNF
visits. We will review and consider the recommendations of the report
to determine whether to add SNFs to the list of approved originating
sites. We are also soliciting public comments on this topic.

E. Contractor Pricing of Unlisted Therapy Modalities and Procedures

[If you choose to comment on issues in this section, please include the
caption ``CODING--CONTRACTOR PRICING'' at the beginning of your
comments.]
We recognize that there may be services or procedures performed
that have no specific CPT codes assigned. In these situations, it is
appropriate to use one of the CPT codes designated for reporting
unlisted procedures. These unlisted codes do not typically have RVUs
assigned to them.
For services coded using these unlisted codes, the provider
includes a description of specific procedures that were furnished. The
contractor uses this information to determine an appropriate valuation.
Currently, there are two unlisted CPT codes with assigned RVUs, CPT
97039, Unlisted modality (specify and time if constant attendance), and
97139 Unlisted therapeutic procedure. Given the variability of the
services that could be provided using these nonspecific codes, use of
assigned RVUs may not accurately reflect the resources actually
associated with the provided services. This may result in an
inappropriate

[[Page 45789]]

payment (overpayment or underpayment) for the service provided.
Other unlisted services that are under the PFS are contractor
priced. To make the pricing methodology consistent with our policy for
other unlisted services, and to more appropriately match payments with
the actual resources expended to deliver the services provided, we
propose to have the contractors value CPT codes 97039 and 97139.

F. Payment for Teaching Anesthesiologists

[If you choose to comment on issues in this section, please include the
caption ``TEACHING ANESTHESIOLOGISTS'' at the beginning of your
comments.]
The following discussion summarizes the current policy for the
payment for services provided by teaching anesthesiologists and
solicits public comments on possible revisions to the current payment
policy.
1. Payment for Anesthesia Services
Anesthesia services are paid under the PFS, but on a different
basis than other physician services. Payments for anesthesia services
are calculated using a ``base unit'' that is specific to the anesthesia
code plus the anesthesia time units. As noted in our regulations at
Sec. 414.46(a)(1), the base unit reflects all activities other than
anesthesia time and includes the usual pre-operative and post-operative
care. Anesthesia time units are computed (in 15 minute increments) from
the actual elapsed time for the anesthesia procedure.
Anesthesia services may be personally performed by the
anesthesiologist, or the anesthesiologist may medically direct
qualified individuals involved in up to four concurrent anesthesia
cases. Qualified individuals can include anesthesiologist assistants
(AAs), certified registered nurse anesthetists (CRNAs), interns, or
residents, and, under certain circumstances, student nurse
anesthetists. When the anesthesiologist medically directs an anesthesia
case, the payment for the physician's medical direction service is 50
percent of the allowance otherwise recognized if the anesthesiologist
personally performed the service. The physician would have to fulfill
each of the medical direction criteria in Sec. 415.110(a) to bill
under the medical direction policy.
2. Teaching Physician Payment Policy
Under the teaching physician payment policy for complex surgery,
the full fee schedule payment can be made for the services of the
teaching physician as long as the teaching physician is present with
the resident for the critical or key portions of the service. In order
to bill for two overlapping surgeries, the teaching surgeon must be
present during the key or critical portions of both operations.
Beginning in 1994, the teaching physician payment policy has been
applied to anesthesiologists only when the teaching anesthesiologist is
involved in one anesthesia case with a resident. If the teaching
physician is involved with two concurrent cases, then the rules for
``medical direction'' of anesthesia apply.
In August 2002, we released a Medicare Carriers Manual transmittal
relating to the involvement of a non-medically directed teaching CRNA
with two student nurse anesthetists. The new policy allowed the
teaching CRNA to be paid for his or her involvement with two concurrent
cases with student nurse anesthetists, but not at the full fee level.
If a teaching CRNA is involved with two concurrent cases with student
nurse anesthetists, payment may be based on the base unit plus the time
of each case that the teaching CRNA is present with the student nurse
anesthetist. To bill the base unit, the teaching CRNA must be present
with the student nurse anesthetist throughout the pre- and post-
anesthesia care.
In the Revisions to Payment Policies Under the Physician Fee
Schedule for Calendar Year 2004 final rule, published November 7, 2003
(68 FR 63196-63395), we revised Sec. 414.46 of our regulations to
allow teaching anesthesiologists to bill in a similar manner to
teaching CRNAs for the teaching anesthesiologist's involvement in two
concurrent cases involving residents. This policy took effect for
services furnished on or after January 1, 2004. This was intended as an
alternative to the ``medical direction'' payment policy applicable to
concurrent cases involving teaching anesthesiologists and residents.
Under this policy, teaching anesthesiologists can bill and be paid
the full fee schedule for the base unit portion of the payment if they
are present with the resident during the pre- and post-anesthesia care
included in the base units. Teaching anesthesiologists can also bill
and be paid the full fee schedule amount for anesthesia time based on
the amount of time the physician is present with the resident during
each of the two concurrent cases. Payment to a teaching
anesthesiologist for two concurrent cases involving residents under
this policy would be greater than under the medical direction payment
policy. However, if the teaching anesthesiologist is not present with
the resident during the pre- and post-anesthesia care for both
concurrent cases, the physician could only bill the cases as
``medically directed.''
Despite the higher level of payment available under this policy,
the American Society of Anesthesiologists (ASA) has informed us that it
is not aware of any teaching anesthesia programs that have arranged
their practices to meet the conditions necessary to bill under the
revised policy. The ASA suggests that the teaching physician
regulations for teaching anesthesiologists should be similar to those
for teaching surgeons for overlapping complex surgery procedures. The
ASA thinks that anesthesia is similar to complex surgery in terms of
critical periods, overlap, and availability of teaching physicians.
However, the critical portions of the teaching anesthesia service and
the critical portions of the teaching surgeon service are not the same.
The ASA believes that inadequate payment levels have contributed to the
loss of teaching anesthesiologists and an inability to recruit new
faculty.
We are requesting comments on a teaching physician policy for
anesthesiologists that could build on the policy announced in the
November 7, 2003 PFS final rule, but provide the appropriate revisions
that would allow it to be more flexible for teaching anesthesia
programs. We would also be interested in receiving data and studies
relevant to this issue as well as any offsetting savings that could be
made to account for any potential costs that could be incurred if there
was a policy change.

G. End Stage Renal Disease (ESRD) Related Provisions

On November 15, 2004, we published the Revisions to Payment
Policies Under the Physician Fee Schedule for Calendar Year 2005 final
rule in the Federal Register (69 FR 66319), revising payments to ESRD
facilities in accordance with provisions of the MMA. This final rule
implemented section 1881(b) of the Act, as amended by section 623 of
the MMA, which directed the Secretary to make a number of revisions to
the composite rate payment system, as well as payment for separately
billable drugs furnished by ESRD facilities. Changes that were
implemented January 1, 2005 included a revision to payments for drugs
billed separately by ESRD facilities whereby the top ten ESRD drugs are
paid based on acquisition costs (as determined by the Office of
Inspector General (OIG)) and other separately billed drugs are paid
average sales price (ASP) +6 percent.

[[Page 45790]]

Also, in accordance with section 623 of the MMA, an adjustment of
8.7 percent was made to the composite payment rate to account for the
difference between previous payments for separately billed drugs and
biologicals and the revised pricing that took effect January 1, 2005.
As required by section 623 of the MMA, we are proposing to update this
add-on adjustment to reflect changes in ESRD drug utilization. In
addition, we are proposing to revise the add-on adjustment to reflect
the methodology we will be using for ESRD drugs.
Section 623 of the MMA also required the establishment of basic
case-mix adjustments to the composite payment rate for a limited number
of patient characteristics. The November 15, 2004 final rule
implemented three categories of patient characteristic adjustments
(age, low body mass index (BMI), and body surface area (BSA)) that were
implemented April 1, 2005. We are proposing to maintain these
categories and patient characteristics as established in the November
15, 2004 final rule (69 FR 66238).
Also, section 1881(b)(12) of the Act as amended by section 623 of
the MMA provided authority to revise the geographic adjustment applied
to the composite payment rate. Accordingly, we are proposing to revise
the geographic classifications and wage indexes currently in effect for
adjusting composite rate payments. As required by section 623 of the
MMA, these proposed changes will be phased in over time.
In addition, we are proposing revisions to the regulations
applicable to the composite rate exceptions process to reflect section
623 of the MMA provisions that restrict exceptions to pediatric
facilities.
1. Revised Pricing Methodology for Separately Billable Drugs and
Biologicals Furnished by ESRD Facilities
[If you choose to comment on issues in this section, please include the
caption ``ESRD-Pricing Methodology'' at the beginning of your
comments.]
In the Revisions to Payment Policies under the Physician Fee
Schedule for Calendar Year 2005 final rule, published on November 15,
2004, we determined that for CY 2005, payment for the top 10 separately
billable ESRD drugs billed by freestanding facilities would be based on
the acquisition cost of the drug, as determined by the OIG, updated by
the Producer Price Index (PPI). The remaining separately billable ESRD
drugs would be paid at the ASP +6 percent for freestanding facilities.
We also determined that hospital-based facilities would continue cost
reimbursement for all drugs with the exception of erythopoeitin (EPO)
which would be paid the acquisition cost, as determined by the OIG,
updated by the PPI.
As discussed in section II.H. of this proposed rule, for CY 2006,
we are proposing that payment for a drug furnished in connection with
renal dialysis services and separately billed by freestanding renal
dialysis facilities will be based on section 1874A of the Act. We are
also proposing to update the payment allowances quarterly based on the
ASP reported to us by drug manufacturers. For CY 2006, we are proposing
to continue cost reimbursement for hospital-based facilities; while,
proposing to pay for EPO in hospital-based facilities at the ASP +6
percent.
2. Adjustment to Account for Changes in the Pricing of Separately
Billable Drugs and Biologicals, and the Estimated Increase in
Expenditures for Drugs and Biologicals.
[If you choose to comment on issues in this section, please include the
caption ``ESRD--Drugs and Biologicals'' at the beginning of your
comments.]
Section 623(d) of the MMA, added section 1881(b)(12) of the Act
which contains two provisions that describe how the drug add-on
adjustment will be implemented in the ESRD payment system. First, that
the add-on adjustment reflects the difference between payment
methodology for separately billed drugs under the drug price in effect
in CY 2004 and current drug pricing and, second, the aggregate payments
for CY 2005 must equal aggregate payments absent this MMA provision.
In the November 15, 2004 final rule (69 FR 66322), we described in
detail the methodology that we used for developing the drug add-on
adjustment to the composite rate to account for the difference between
estimated drug payments under the average wholesale price (AWP) payment
system and the acquisition costs as determined by the OIG. This
adjustment was developed so that aggregate spending for composite rate
plus separately billed drugs would remain budget neutral for CY 2005.
Section 1881(b)(12) of the Act also contains two provisions related
to adjustments to payments for drugs and biologicals for CY 2006.
First, section 1881(b)(12)(C)(ii) of the Act provides that we
recalculate the add-on adjustment to reflect the drug pricing
methodology applied by the Secretary under section 1881(b)(13)(A)(iii)
of the Act. That is, we must compute the drug add-on adjustment based
on the difference between estimated payments using the AWP payment
methodology and the proposed new payment methodology using ASP +6
percent.
In addition, section 1881(b)(12)(F) of the Act requires that,
beginning in 2006, we establish an annual update adjustment to reflect
estimated growth in expenditures for separately billable drugs and
biologicals furnished by ESRD facilities. This update would be applied
only to the drug add-on portion of the composite rate. In order to meet
both requirements, we are proposing to develop the CY 2006 drug add-on
adjustment in two steps.
First, we would recalculate the CY 2005 add-on adjustment to
reflect the difference in drug payments using 95 percent AWP pricing
and payments using ASP +6 pricing. This calculation would replace the
current 8.7 percent adjustment and would be budget neutral to CY 2005
payments. The next step would be to develop a proposed annual update
methodology that we would use in CY 2006 to reflect the estimated
growth in drug expenditures each year. As mentioned above, this update
would be applied only to the drug add-on portion of the composite
payment rate. The following sections discuss the recomputation of the
drug add-on adjustment followed by a discussion of the update of the
adjustment for CY 2006.
a. Proposed Recalculation of the CY 2005 Drug Add-on Adjustment
For CY 2006, we are proposing to use the same method that we used
to develop the drug add-on adjustment for CY 2005 to recalculate the
adjustment to reflect the proposed revision to the ESRD drug payment
methodology from acquisition costs to ASP +6 percent. That is, we
propose to calculate the spread based on the difference in aggregate
payments between estimated payment based on AWP pricing and estimated
payment based on ASP +6 pricing. As discussed in detail below, we
propose to use pricing data from the second quarter of CY 2005. All of
the data used to develop the proposed add-on adjustment will be updated
for the final rule, as more current data, including ASP data, will be
available.
(1) Historical Drug Expenditure Data
To develop the drug add-on adjustment we used historical total
aggregate payments for separately billed ESRD drugs for half of CY 2000
and all of CY 2001, CY 2002 and CY 2003. For EPO, these payments were
broken down according to type of ESRD facility

[[Page 45791]]

(hospital-based versus independent). We also used the number of
dialysis treatments performed by these two types of facilities over the
same period.
(2) ASP +6 Percent Prices
We obtained the ASP +6 percent prices, for the second quarter of CY
2005, as shown in the following table. For purposes of this proposed
rule, we have used the latest ASP pricing available, which are second
quarter prices. For the final rule, we will have prices for all 4
quarters of CY 2005 and plan to develop prices representing the average
CY 2005 ASP payments for the drugs listed in Table 20 below.

TABLE 20.
------------------------------------------------------------------------
Second
Drugs quarter ASP
+6 percent
------------------------------------------------------------------------
Epogen.................................................... $9.25
Calcitriol................................................ $0.86
Doxercalciferol........................................... $2.78
Iron_dextran.............................................. $11.22
Iron_sucrose.............................................. $0.37
Levocarnitine............................................. $11.12
Paricalcitol.............................................. $3.97
Sodium--ferric--glut...................................... $4.73
Alteplase, Recombinant.................................... $30.09
Vancomycin................................................ $3.19
------------------------------------------------------------------------

(3) Estimated Medicare Payments Using 95 Percent of AWP
In order to estimate AWP payments we used the first quarter 2005
AWP prices and updated them to the second quarter by applying, for
drugs other than EPO, an estimated AWP quarterly growth of
approximately 0.74 percent (annual growth factor of 3 percent). This
growth factor is based on historical trends of AWP pricing (for all
drugs) for the year 1997-2003. We did not increase the payment rate for
Epogen since payment was maintained at $10.00 per thousand units prior
to MMA. (See Table 21.)

TABLE 21.
------------------------------------------------------------------------
AWP rates
for the
Drugs second
quarter of
2005
------------------------------------------------------------------------
Epogen.................................................... $10.00 *
Calcitriol................................................ $1.40
Doxercalciferol........................................... $3.11
Iron_dextran.............................................. $18.04
Iron--sucrose............................................. $0.66
Levocarnitine............................................. $36.75
Paricalcitol.............................................. $5.37
Sodium_ferric--glut....................................... $8.23
Alteplase, Recombinant.................................... $38.82
Vancomycin................................................ $5.55
------------------------------------------------------------------------
* Statutory rate.

(4) Dialysis Treatments
We updated the number of dialysis treatments by the actuarial
projected growth in the number of ESRD beneficiaries. Since Medicare
covers a maximum of three treatments per week, utilization growth is
limited, and, therefore, any increase in the number of treatments
should be due to beneficiary enrollment. In CY 2005, we estimate there
will be a total of 34.5 million treatments performed. We note that this
represents the most current actuarial projection and differs slightly
from the projection published in the November, 15, 2004 final rule. (69
FR 66323)
(5) Drug Payments
We updated the total aggregate Epogen drug payments for both
hospital-based and independent facilities by using historical trend
factors. For CY 2004 and CY 2005, the CY 2003 payment level was
increased each year by trend factor of 9.0 percent.
Using the 9 percent growth factor for Epogen, we updated the
aggregate spending for separately billable drugs, other than EPO, for
independent facilities. Aggregate payments in this category show
extremely varied growth between 2000 and 2003, and, for this reason, we
felt that trend analysis was not sufficient. Therefore, we believe it
would be reasonable to correlate the growth of Epogen and separately
billable drugs in an independent facility, since Epogen constitute the
largest amount of drugs dispensed in an independent facility.
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 spending on syringes that were included in
the EPO payments prior to the implementation of the MMA drug payment
provisions. In CY 2005, we estimate payments for these syringes will
amount to $1.6 million for hospital-based facilities and $26.8 million
for independent facilities. For CY 2005, we estimate that total
spending, after the deduction of payments for syringes, will reach $246
million for Epogen provided in hospital-based facilities, and $2.850
million for drugs provided in independent facilities ($1.960 million
for Epogen and $890 million for other drugs). We note that all other
drugs provided in hospital-based ESRD facilities continue to be paid at
cost.
(6) Add-On Calculation and Budget Neutrality
For each of the top 10 drugs (as explained below), we calculated
the percent by which ASP +6 percent is projected to be less than
payment amounts under the 95 percent of AWP pricing system for CY 2005.
For Epogen, this amount is 7.5 percent. We applied this 7.5 percent
figure to the total aggregate drug payments for Epogen in hospital-
based facilities, resulting in a difference of $18 million.
We then calculated a weighted average of the percentages by which
ASP +6 percent would be below 95 percent of AWP payment prices, for the
top 10 ESRD drugs for independent facilities. We weighted these
percentages by using the CY 2005 estimated Medicare payment amounts for
the top 10 drugs. This procedure resulted in a weighted average payment
reduction of 12 percent. We note that in the previous calculation for
the CY 2005 add-on adjustment, we had used CY 2002 values from the OIG.
(See Table 22 for the calculated drug weights, and Table 23 for the
percentage by which ASP prices are lower than AWP prices.) The CY 2003
data projected forward to CY 2005 indicated a significant drop in
payments for drugs other than Epogen that are provided in an
independent facility. This trend, which we expect will continue when we
obtain CY 2004 historical data for the final rule, decreases the
weights of the drugs, other than Epogen and increases the weight of
Epogen. The overall effect is to lower the weighted average by several
percentage points.

[[Page 45792]]

TABLE 22.
------------------------------------------------------------------------
CY 2005
estimated CY 2002 OIG
drug drug
payments as payments as
Drugs a percentage a percentage
of total of total
drug drug
expenditures expenditures
(percent) (percent)
------------------------------------------------------------------------
Epogen...................................... 78.83 67.85
Calcitriol.................................. 0.13 1.22
Doxercalciferol............................. 1.74 1.28
Iron_dextran................................ 0.38 0.65
Iron_sucrose................................ 0.71 5.00
Levocarnitine............................... 0.89 1.68
Paricalcitol................................ 17.37 15.90
Sodium_ferric_glut.......................... 0.53 6.03
Alteplase, Recombinant...................... 0.18 0.19
Vancomycin.................................. 0.24 0.20
------------------------------------------------------------------------
* Compared to the $10.00 statutory price.

TABLE 23.
------------------------------------------------------------------------
Percent by
which ASP+6
percent
rates are
Drugs below 95
percent of
AWP prices
(except EPO)
(percent)
------------------------------------------------------------------------
Epogen.................................................... * 7.5
Calcitriol................................................ 38.7
Doxercalciferol........................................... 10.6
Iron_dextran.............................................. 37.8
Iron_sucrose.............................................. 45.1
Levocarnitine............................................. 69.7
Paricalcitol.............................................. 26.0
Sodium_ferric_glut........................................ 42.6
Alteplase, Recombinant.................................... 22.5
Vancomycin................................................ 42.6
------------------------------------------------------------------------
* Compared to the $10.00 statutory price.

We estimate that these ten drugs represent nearly 92 percent of
total CY 2005 drug payments to independent facilities. To account for
the drug spread related to the 8 percent of drug expenditures for which
we do not have pricing data, we applied the weighted average to 100
percent of aggregate drug spending projections for independent
facilities, producing a projected difference of $343 million. The
weighted average is applied to 100 percent of drug spending projections
for independent facilities to account for the drug spread related to
the 8 percent of drugs expenditures for which we do not have pricing
data.
We combined the CY 2005 figures of $18 million for the hospital-
based facilities and $343 million for the independent facilities, for a
total of $362 million. We distributed this over a total projected 34.5
million treatments resulting in a revised CY 2005 add-on to the per
treatment composite rate of 8.1 percent. By making this adjustment to
the composite rate, we estimate that the aggregate payments to both
independent and hospital-based ESRD facilities would be budget neutral
with respect to drug payments for CY 2005, as required by the MMA. We
note that this 8.1 percent adjustment replaces the current 8.7 percent
adjustment for CY 2005 in our calculations.
b. Calculation of the Proposed CY 2006 Update to the Drug Add-On
Adjustment
This section describes the approach that we are proposing to use to
update the drug add-on adjustment.
(1) Drug Payments and Dialysis Treatments
Similar to the process discussed in the previous section, we
updated the total aggregate Epogen drug payments for each hospital-
based and independent facility using historical trend factors. For CY
2006, the payment level was increased from CY 2005 by a trend factor of
9.0 percent.
We also updated aggregate spending for separately billable drugs,
other than EPO, for independent facilities using the 9 percent growth
factor for Epogen. As discussed earlier, payments in this category have
shown extremely varied growth in recent history and historical data
between CY 2002 and CY 2003 showed a significant drop in aggregate
spending. We felt it was reasonable to use trend analysis and correlate
the growth of Epogen and other separately billable drugs. We expect
that we will have further data for the final rule. This procedure
resulted in projected expenditures of $268 million for Epogen provided
in hospital-based facilities and $3.107 million for drugs provided in
independent facilities ($2.137 million for Epogen and $970 million for
other drugs). These numbers include an estimated reduction for the 50
cent payment for syringes of $1.6 million for hospital-based facilities
and $27.5 million for independent facilities. We also updated the
projected number of dialysis treatments using CMS actuarial enrollment
projections. This resulted in a projected 35.4 million treatments for
CY 2006.
(2) Adjustment to Composite Rate Add-On
We then applied the 9 percent growth between projected CY 2005 and
CY 2006 aggregate drug expenditures to the CY 2005 expected drug spread
figures of $18 million for Epogen provided in hospital-based facilities
and $343 million for drugs provided in independent facilities. This
resulted in an incremental increase in the drug spread in CY 2006 of $2
million for Epogen provided in hospital-based facilities and $31
million for drugs provided in independent facilities. We distributed
the combined $33 million over 35.4 million projected treatments,
resulting in an additional 0.7 percent addition to the CY 2005 add-on
of 8.1 percent.
(3) Proposed Drug Add-On Adjustment for CY 2006
With the recalculated CY 2005 add-on to the per treatment composite
rate being 8.1 percent and with the additional increment for
expenditures in CY 2006 being 0.7 percent, we combine them to produce
one drug add-on adjustment for CY 2006 that would be 8.9 percent.
(4) Add-On for Spread for Drugs Furnished in Hospital-Based Facilities
In its June 2005 Report to Congress, MedPAC recommended that
payment differences be eliminated for separately billed drugs furnished
in independent and hospital-based facilities and that all these drugs
be paid under the ASP +6 percent system. While we agree with MedPAC
that paying the same rates in both settings would be the preferable

[[Page 45793]]

policy, we have not proposed this policy because data on dosing units
for drugs furnished by hospital-based facilities are not available.
This data is needed to estimate the drug payments using ASP +6 percent
pricing. That is a key component of the calculation of the drug add-on
adjustment. In their report, MedPAC acknowledges these data issues and
recommends that CMS take steps to collect data on acquisition costs and
payment per unit for drugs provided in hospital-based ESRD facilities.
We are currently examining approaches for obtaining these data.
However, we seek comment about a potential method to estimate the drug
add-on amount for drugs furnished in hospital-based facilities, and we
seek comment about alternative estimation methodologies, data, or both.
One estimation approach could be an approach where the pricing
spread for drugs other than EPO furnished in hospital based facilities
would be assumed to be the same as for those drugs in independent
facilities. This aggregate approach would assume that the add-on amount
for drugs other than EPO furnished in hospital-based facilities results
in the same relative amount of drugs furnished as for those drugs in
independent facilities. Using aggregate ratios, the drug add-on amounts
calculated for drugs other than EPO furnished in independent facilities
might be extrapolated for drugs other than EPO furnished in hospital-
based facilities.
Use of this approach could allow calculation of a reasonable
estimate of aggregate drug add-on amount for drugs other than EPO
furnished in hospital-based facilities until the time that data becomes
available to more accurately calculate the drug add-on adjustment. This
approach would allow payment of all drugs furnished in hospital-based
facilities under the ASP +6 percent payment methodology, achieve
consistent payments for ESRD separately billed drugs regardless of
setting, and provide a reasonable estimation of the drug add-on amount
needed to adjust the composite rates for drugs other than EPO furnished
in hospital-based facilities. We seek comment about this potential
method to estimate spread for drugs furnished in hospital-based
facilities, as well as alternative estimation methodologies, data, or
both.
3. Proposed Revisions to Geographic Designations and Wage Indexes
Applied to the ESRD Composite Payment Rate
[If you choose to comment on issues in this section, please include the
caption ``ESRD-Composite Payment Rate Wage Index'' at the beginning of
your comments.]
Because of the significance of labor costs in determining the total
cost of care, the prospective payment systems (PPSs) which we
administer traditionally have used a wage index to account for
differences in area wage levels. The labor-related shares of costs used
to develop the composite rates were 36.78 percent for hospital-based
facilities and 40.65 percent for independent facilities. The current
composite payment rates are calculated using a blend of two wage
indexes, one based on hospital wage data for fiscal years ending in CY
1982, and the other developed from CY 1980 data from the Bureau of
Labor Statistics (BLS). The wage indexes are calculated for each urban
and rural area based on 1980 U.S. Census definitions of metropolitan
statistical areas (MSAs) or their equivalents, and areas outside of
MSAs in each State, respectively. (51 FR 29411)
Section 4201(a)(2) of OBRA 1990 (Pub. L. 101-508) froze the
composite payment rates, and the basis for their calculation, at the
level in effect as of September 30, 1990 (except for subsequent
statutory updates that did not affect the data used to calculate wage
indexes). The OBRA 1990 restriction on revising the ESRD composite
payment rates has had another effect. ESRD facilities located in
counties classified as rural based on the 1980 Census, but which
subsequently are classified as urban, are still considered rural for
purposes of determining whether urban or rural composite payment rates
apply. The rural rates are generally lower than those for urban ESRD
facilities.
In addition, restrictions also apply to the wage index values used
to compute the ESRD composite payment rates. Payments to facilities in
areas where labor costs fall below 90 percent of the national average,
or exceed 130 percent of that average, are not adjusted beyond the 90
percent or 130 percent level. (See the Prospective Reimbursement for
Dialysis Services and Approval of Special Purpose Renal Dialysis
Facilities final rule (48 FR 21254) and the Composite Rates and
Methodology for Determining the Rates final notice (51 FR 29404)). This
effectively means that ESRD facilities located in areas with wage index
values less than 0.9000 are paid more than they would otherwise receive
if we fully adjusted for area wage differences. Conversely, facilities
in locales with wage index values greater than 1.3000 are paid less
than they would receive if we fully adjusted the rates based on actual
wage levels.
Section 1881(b)(12)(D) of the Act, as amended by section 623(d) of
the MMA, gave the Secretary the discretionary authority to revise the
current wage index. That provision also requires that any revised
measure be phased-in over a multiyear period. In the November 15, 2004
final rule establishing new case-mix adjusted composite payment rates
(69 FR 66332), we stated that we were deferring replacing the current
wage index pending further assessment. We have completed our review,
and believe that modernizing the current ESRD wage index is a matter of
some urgency. After further analysis we are proposing to use OMB's
revised geographic definitions announced in OMB Bulletin No. 03-04,
issued June 6, 2003. These new definitions are known as Core-Based
Statistical Areas (CBSAs). In conjunction with the CBSAs, we are also
proposing to recalculate the ESRD wage indexes based on acute care
hospital wage and employment data for FY 2002, as reported to us in
connection with the development of the wage index used in the inpatient
hospital prospective payment system (IPPS). In addition, we are also
proposing to update the labor portion of the ESRD composite rate to
which the wage index is applied. The basis for our proposed revisions
to the current ESRD composite rate wage index to reflect these changes
is set forth in the following sections.
a. Current Urban and Rural Locales Based on MSAs
We currently adjust the labor-related share of the composite
payment rates to account for differences in area wage levels using a
wage index which is a blend of two wage index values, one based on
hospital wage data from FY 1982, and the other developed from 1980
hospital data from the BLS. The hospital and BLS proportions of the
blended wage index are 40 percent and 60 percent, respectively. The
hospital and BLS wage index values used to compute the blended wage
index were published in the Federal Register on August 15, 1986 (51 FR
29412).
The use of a blended wage index results from our effort to
transition ESRD facilities from composite payment rates using a wage
index based on BLS data, to one developed from hospital wage and
employment data obtained from Medicare cost reports (``the hospital
wage index''). A major limitation of the BLS wage index was its
inability to distinguish area differences in the use of part-time
hospital workers. In order to mitigate the impact of changes in
facility payment rates as a

[[Page 45794]]

result of our adoption of the new hospital wage index, we began a five-
year phase-in of the new measure. During the phase-in period, we had
intended to use a weighted wage index, under which the BLS portion
would decrease 20 percent and the share represented by the hospital
wage index would increase 20 percent each year. During the second year
of the phase-in, for which the hospital and BLS portions of the wage
index were 40 percent and 60 percent, respectively, the wage index was
frozen as a result of the OBRA 1990 prohibition on composite payment
rate revisions.
The wage indexes are calculated for each urban and rural area. In
general, an urban area is a MSA or New England County Metropolitan Area
as defined by OMB based on 1980 U.S. Census definitions. A rural area
consists of all counties within each State outside of an urban area.
The counties which comprise the urban locales currently used to compute
the wage index values incorporated in the urban composite payment rates
were last published in the Federal Register on May 30, 1986 (51 FR
19738-19739). Although OMB has revised the definitions of the MSAs
since that time, the composite payment rate urban/rural designations
have not been changed due to the prohibition on revising the ESRD
payment methodology established under section 4201(a)(2) of OBRA 1990.
More current MSAs are used in connection with several other non-acute
care Medicare PPSs that we administer, including those for SNFs, long-
term care hospitals (LTCHs), inpatient psychiatric facilities (IPFs),
home health agencies (HHAs), and inpatient rehabilitation facilities
(IRFs).
b. Revision of Geographic Classifications
On June 6, 2003, OMB issued Bulletin 03-04 that announced new
geographic area designations based on the 2000 Census. The bulletin
established revised definitions for the nation's MSAs, designated
county based Metropolitan Divisions within the MSAs that have a single
core with a population of at least 2.5 million, created two new sets of
statistical areas (Micropolitan Statistical Areas and Combined
Statistical Areas), and defined New England City and Town Areas. The
bulletin may be accessed on the Internet at: http://www.whitehouse.gov/omb/bulletins/bo3-04.html
.

Section 623 of the MMA gave the Secretary the authority to revise
the geographic areas used to develop the wage indexes currently
reflected in the composite payment rates, removing the OBRA 1990
restriction. Although we published revised composite payment rates in
the November 15, 2004 final rule implementing MMA mandated revisions to
those rates, we did not propose revising the wage indexes, or the
geographic areas on which they are based at that time. For reasons
discussed below, we are proposing to use OMB's list of geographic
designations for purposes of adjusting the urban and rural composite
payment rates. Facilities located in counties within MSAs or
Metropolitan Divisions within CBSAs would be considered urban, while
facilities located in micropolitan counties or other counties outside
of the CBSAs would be classified as rural. We point out that these are
the same urban and rural definitions used in connection with the
Medicare IPPS, and are discussed in the August 11, 2004 final rule
establishing the IPPS FY 2005 payment rates (69 FR 49026).
c. Core-Based Statistical Areas (CBSAs)
OMB reviews its metropolitan area definitions preceding each
decennial census. As explained in the August 11, 2004 IPPS final rule
(69 FR 49026), OMB chartered the Metropolitan Standards Review
Committee to examine the metropolitan area standards and develop
recommendations for possible changes to those standards. Three notices
related to the review of the standards, providing an opportunity for
public comment on the recommendations of the Committee, were published
in the Federal Register on December 21, 1998 (63 FR 70526), October 20,
1999 (64 FR 56628), and August 22, 2000 (65 FR 51060).
In the December 27, 2000 Federal Register (65 FR 82228), OMB
published a notice announcing its new standards. According to that
notice, OMB defines a CBSA beginning in 2003 as ``a geographic entity
associated with at least one core of 10,000 or more population, plus
adjacent territory that has a high degree of social and economic
integration with the core as measured by commuting ties.'' The
standards designate and define two categories of CBSAs: MSAs and
Micropolitan Statistical Areas (65 FR 82235).
According to OMB, MSAs are based on urbanized areas of 50,000 or
more population, and Micropolitan Statistical Areas (referred to
hereafter as Micropolitan Areas) are based on urban clusters with at
least 10,000, but less than 50,000 population. Counties that do not
fall within CBSAs are deemed ``Outside CBSAs''. Previously OMB defined
MSAs around areas with a minimum core population of 50,000, and smaller
areas were ``Outside MSAs''. On June 6, 2003 OMB announced the new
CBSAs, consisting of MSAs and the new Micropolitan Areas based on the
results of the 2000 Census.
d. Adoption of MSAs as Urban Areas for Composite Payments
In its June 6, 2003 announcement, OMB cautioned that its new
metropolitan area definitions ``should not be used to develop and
implement Federal, State, and local nonstatistical programs and
policies without full consideration of the effects of using these
definitions for these purposes. These areas should not serve as a
general purpose geographic framework for nonstatistical activities, and
they may or may not be suitable for use in program funding formulas.''
We point out that Medicare's PPSs, including the ESRD composite
payment rate, historically have used the metropolitan area definitions
developed by OMB. While the hospital IPPS is the most significant of
these, the OMB geographic designations are also used to define labor
market areas for purposes of recognizing area differences in labor
costs under the SNF, inpatient rehabilitation, IPFs, and home health
PPSs. In discussing the adoption of the OMB geographic designation for
the IPPS area labor adjustment, the FY 1985 IPPS proposed rule
published July 3, 1984 (49 FR 27426) noted as follows:

[i]n administering a national payment system, we must have a
national classification system built on clear, objective standards.
Otherwise the program becomes increasingly difficult to administer
because the distinction between rural and urban hospitals is
blurred. We believe that the MSA system (developed by OMB) is the
only one that currently meets the requirements for use as a
classification system in a national payment program. The MSA
classification system is a statistical standard developed for use by
Federal agencies in the production, analysis, and publication of
data on metropolitan areas. The standards have been developed with
the aim of producing definitions that will be as consistent as
possible for all MSAs nationwide.

The logic represented in the statement above still applies today.
The process used by OMB to develop the geographic designations resulted
in the creation of geographic locales that we believe also reflect the
characteristics of unified labor market areas. The CBSAs contain a core
population plus adjacent areas that reflect a high degree of social and
economic integration. This integration is measured by commuting
patterns, thus demonstrating that the areas likely draw workers from
the same general locale. In

[[Page 45795]]

addition, the CBSAs reflect the most up-to-date information, based on
the 2000 Census. OMB reviews its metropolitan area definitions
preceding each decennial census to ensure consideration of the most
recent population changes. Finally, in the context of the IPPS, we have
reviewed alternative methods for determining geographic areas for
purposes of the wage index. In each case, we have concluded that it was
preferable to retain the independently developed OMB designations
rather than replace them with alternatives. (See the August 11, 2004
final IPPS rule at 69 FR 49027-49028.)
Aside from the long established precedent of using OMB geographic
designations to adjust for differing area wage levels in the PPSs that
we administer, we also point out that the Congress has recognized the
propriety of the OMB definitions in distinguishing among geographic
areas for making Medicare payments. For example, section 1886(d)(2)(D)
of the Act defines an ``urban area'' as ``an area within a MSA (as
defined by the OMB) or within a similar area as the Secretary has
recognized.'' Similarly, in the sections of the Act governing the
guidelines to be used by the Medicare Geographic Classification Review
Board for hospital reclassification, the Congress directed the
Secretary to create guidelines for ``determining whether the county in
which the hospital is located should be treated as being a part of a
particular [MSA]''. (See sections 1886(d)(10)(A) and (D)(i)(II) of the
Act.) The Congress has accepted the use of MSAs as a reasonable basis
for dividing the nation into labor market areas for purposes of
Medicare payments. Accordingly, we are proposing to revise the ESRD
composite payment system labor market areas based on OMB's geographic
designations. Facilities located in counties within MSAs (including
those in the MSA category of CBSA) would be classified as urban. We are
proposing that facilities located in Micropolitan Areas (the other
category of CBSA) or in other counties outside of CBSAs in each State,
would be considered rural.
e. Revised OMB Geographic Areas
In the following sections we discuss the classification of
facilities located in New England MSAs, within Metropolitan Divisions
of MSAs, and our proposed treatment of the CBSA classification of
Micropolitan Areas.
(1) New England MSAs
Under the current composite payment system, urban areas in New
England reflect county-based locales known as New England County
Metropolitan Areas (NECMAs), rather than MSAs. We use NECMAs in New
England to provide consistency in labor market definitions compared to
the MSAs used in the rest of the country, which are also based on
counties. Under the new CBSAs, OMB has defined MSAs and Micropolitan
Areas in New England on the basis of counties. OMB has also established
a new classification, New England City and Town Areas (NECTAs), which
are similar to the previous New England MSAs, but which are not used in
the geographic area revisions proposed in this proposed rule.
In the interest of consistency among all urban labor market areas,
we are proposing to use the county-based definitions for all MSAs in
the nation. As a result of the 2000 Census, we now have county-based
MSAs in New England. We believe that adopting county-based definitions
for all urban areas in the country provides consistency and stability,
and minimizes administrative complexity in the Medicare program. We
point out that our use of MSAs in New England comports with the
implementation of the CBSA designations under the IPPS for New England
urban locales. (See the August 11, 2004 Federal Register, 69 FR 49208.)
Accordingly, under the revised composite payment rates discussed in
this proposed rule, we are proposing to use New England MSAs along with
MSAs in the rest of the nation to define urban areas. As a result,
urban locales in New England would no longer be based on NECMAs.
(2) Metropolitan Divisions
Under OMB's new CBSA designations, a Metropolitan Division is a
county or group of counties within a CBSA that contains a core
population of at least 2.5 million, representing an employment center,
plus adjacent counties associated with the main county or counties
through commuting ties. A county qualifies as a main county if 65
percent or more of its employed residents work within the county, and
the ratio of the number of jobs located in the county to the number of
employed residents is at least 75 percent. A county qualifies as a
secondary county if at least 50 percent, but less than 65 percent, of
its employed residents work within the county, and the ratio of the
number of jobs located in the county to the number of employed
residents is at least 75 percent. After all the main and secondary
counties are identified and grouped, each additional county that
already has qualified for inclusion in the MSA falls within the
Metropolitan Division associated with the main or secondary county or
counties with which the county at issue has the highest employment
interchange measure. Counties in a Metropolitan Division must be
contiguous (See the December 27, 2000 Federal Register, Standards for
Defining Metropolitan and Micropolitan Statistical Areas, (65 FR
82236)).
Under the CBSA definitions, there are 11 MSAs containing
Metropolitan Divisions: Boston; Chicago; Dallas; Detroit; Los Angeles;
Miami; New York; Philadelphia; San Francisco; Seattle; and Washington,
DC. We believe that these MSAs may be too large to accurately reflect
the local labor costs prevailing within each of these areas. For
example, the Chicago-Naperville-Joliet IL-IN-WI MSA consists of 14
counties classified among 3 Metropolitan Divisions: Chicago-Naperville-
Joliet IL (8 counties); Lake County-Kenosha County IL-WI (2 counties);
and Gary IN (4 counties). Similarly, the New York-Newark-Edison NY-NJ-
PA MSA consists of 23 counties classified among 4 Metropolitan
Divisions: New York-Wayne-White Plains NY-NJ (11 counties); Newark-
Union NJ-PA (6 counties); Edison NJ (4 counties); and Suffolk County-
Nassau County NY (2 counties). Accordingly, for the 11 MSAs with
Metropolitan Divisions, we are proposing to use the Metropolitan
Division as the urban area for purposes of constructing the wage index
and applying revised composite payment rates.
We believe that the proposed use of Metropolitan Divisions would
result in a more accurate adjustment accounting for local variation in
labor costs within each of the 11 MSAs with those Divisions. We are
proposing to recognize each county-based Metropolitan Division within
the 11 affected MSAs as a separate urban area for purposes of applying
revised composite payment rates. Each Metropolitan Division would have
its own wage index and its own urban composite payment rate. This
proposed methodology is consistent with the new CBSA-based labor market
definitions under the IPPS. (See the August 11, 2004 Federal Register,
69 FR 49029.)
(3) Micropolitan Statistical Areas
In its June 6, 2003 bulletin, OMB also designated another
classification of metropolitan area, Micropolitan Statistical Areas,
which we will refer to as Micropolitan Areas. That bulletin listed 565
Micropolitan Areas. Of the 3142 counties in the United States, 1090 are
in MSAs and 674 are in

[[Page 45796]]

Micropolitan Areas, with the remaining 1378 outside of either
classification. As discussed in greater detail in the August 11, 2004
IPPS final rule (69 FR 49029-49032), the way that Micropolitan Area
counties are classified in connection with developing revised wage
indexes has a substantial impact on the wage index adjustment.
Specifically, whether or not Micropolitan Areas are included in
computing the statewide rural wage indexes has a significant effect on
the rural wage index in any State that contains these locales.
Consistent with the IPPS final rule, we are proposing that each
Micropolitan Area county continue to be considered part of each State's
rural labor market area. That is, we would continue to classify all
Micropolitan counties as rural.
To facilitate an understanding of our proposed policies relating to
the revisions to the ESRD facility labor market areas discussed in this
proposed rule, we have provided addendum F in the Addendum section to
this proposed rule. Addendum F is a crosswalk table that contains a
listing of each SSA State and county location code; state and county
name; existing 1980 MSA based labor market area designation; and CBSA-
based labor market area. Addendum F also contains the new wage indexes
for each urban and rural area.
f. Proposed Revisions to the Labor Component of the Composite Rate
The current labor-related portions of the hospital-based and
independent composite payment rates (in other words, the portion
adjusted by each facility's area wage index) are 36.78 percent and
40.65 percent, respectively. These labor-related shares have not been
revised since the inception of the ESRD composite payment system in
1983.
When the composite rates were established in 1983, we developed the
labor-related share of the rate based on 1978 and 1979 cost data
collected from 110 ESRD facilities; 40 independent and 70 hospital-
based. For other PPSs administered by us, the labor-related shares are
determined based on the labor components established in the relevant
market baskets for each provider type.
The basis for determining the current labor shares is based on
outdated data from very few facilities relative to the current number
of ESRD facilities (110 versus approximately 4300 facilities). We are
proposing to establish a single labor-related share applicable to all
ESRD facilities based on the labor-related categories included in the
ESRD composite rate market basket. This change will bring the
methodology for the ESRD composite rate labor-related share more in
line with that for determining the labor-related shares for other
Medicare PPSs.
(1) ESRD Composite Rate Market Basket
In the following sections, we present a brief background on market
baskets, provide a reference to the detailed methodology used to
develop the ESRD composite rate market basket, and outline the
methodology used to determine the proposed ESRD labor share.
As required by section 422(b) of the Medicare, Medicaid, and SCHIP
Benefits Improvement and Protection Act of 2000 (BIPA), Pub. L. 106-
554, we developed an ESRD composite rate market basket. Each of the
PPSs that we administer utilizes a market basket that reflects each
type of provider's production patterns used to furnish patient care.
The market baskets capture the rate of price inflation for a fixed
quantity of inputs (both goods and services used to provide medical
services) relative to a base year. Each of the PPS market baskets
distinguishes between labor-related and non-labor costs. Similar to
other PPSs, we believe the ESRD composite rate market basket index is
an appropriate measure for revising the labor-related portion of the
composite payment rate. The detailed methodology used to develop the
ESRD composite rate market basket, including data sources, cost
categories, and price proxies, is set forth in the Secretary's May 2003
report to the Congress, Toward a Bundled Outpatient Medicare ESRD
Prospective Payment System. That report is available on the Internet at
http://qa.cms.hhs.gov/providers/esrd and we recommend it to interested

readers. We used CY 1997 as the base year for the development of the
ESRD composite rate market basket cost categories. Source data included
CY 1997 Medicare cost reports (Form CMS-265-94), supplemented with 1997
data from the U.S. Department of Commerce, Bureau of the Census'
Business Expenditure Survey (BES). Analysis of Medicare cost reports
for CYs 1996, 1997, 1998, and 1999 showed little difference in cost
weights compared to CY 1997. Medicare cost reports from independent
ESRD facilities were used to construct the market basket because data
from independent ESRD facilities tend to reflect the actual cost
structure faced by the ESRD facility itself, and are not influenced by
the allocation of overhead over the entire institution as in hospital-
based facilities. This approach is consistent with our standard
methodology used in the development of other market baskets,
particularly those used for updating the SNF and home health PPSs. We
expect that the cost structure in both hospital-based and independent
ESRD facilities and units would be similar. Therefore, we are proposing
to base the labor-related share of the composite payment rates on data
from freestanding facilities only.
In Table 24, we have reproduced Table 2 from the May 2003 report to
the Congress containing the ESRD composite rate market basket cost
categories, weights, and price proxies in this proposed rule. This
table lists all of the expenditure categories in the ESRD composite
rate market basket.

Table 24.--ESRD Composite Rate Market Basket Cost Categories, Weights,
and Price Proxies
------------------------------------------------------------------------
Base-year:
CY 1997
Cost category Price/wage variable weights
(percent)
------------------------------------------------------------------------
Total........................... ........................ 100.000
Compensation.................... ........................ 47.388
Wages and Salaries.......... ECI--Health Care Workers 38.808
Employee Benefits........... ECI--Benefits Health 8.580
Care Workers.
Professional Fees............... ECI--Compensation Prof. 0.903
& Tech. (Priv.).
Utilities....................... ........................ 1.524
Electricity................. WPI--Commercial Electric 0.818
Power.
Natural Gas................. WPI--Commercial Natural 0.113
Gas.
Water and Sewerage.......... CPI--Water & Sewage..... 0.593
All Other....................... ........................ 36.156

[[Page 45797]]

Pharmaceuticals............. WPI--Prescription Drugs. 0.967
Supplies.................... PPI--Surgical, Medical 17.748
and Dental*.
Labs........................ PPI--Medical Labs....... 0.433
Telephone................... CPI--Telephone Services. 0.875
Housekeeping and Operations. PPI--Building, cleaning, 1.247
and maintenance.
Administrative and Other CPI--All items less food 14.886
Costs. and energy.
Capital Costs................... ........................ 14.029
Capital Related--Building CPI--Residential Rent... 9.071
and Equipment.
Capital Related--Machinery.. PPI--Electrical 4.957
Machinery and Equipment.
------------------------------------------------------------------------

The labor-related share of a market basket is determined by
identifying the national average proportion of operating costs that are
related to, influenced by, or vary with the local labor market. The
labor-related share is typically the sum of wages and salaries, fringe
benefits, professional fees, labor-intensive services, and a portion of
the capital share from the appropriate market basket.
We used the 1997-based ESRD composite rate market basket costs to
determine the proposed labor-related share for ESRD facilities. The
proposed labor-related share for ESRD facilities is 53.711, as shown in
Table 25. It is the sum of wages and salaries, employee benefits,
professional fees, housekeeping and operations, and 46 percent of the
weight for capital-related building and equipment (the portion of
capital that we have determined to be influenced by local labor
markets). The following section describes each of the categories that
make up the proposed labor-related share for the ESRD composite rate
payment system and how they were derived.

Table 25.--Proposed ESRD Composite Rate Labor-Related Share
------------------------------------------------------------------------
Proposed CY
1997-based
ESRD
Cost category composite
rate labor
share
(percent)
------------------------------------------------------------------------
Wages and salaries........................................ 38.808
Employee benefits......................................... 8.580
Professional fees......................................... 0.903
Housekeeping and operations............................... 1.247
-----------------------------------------------------------
SUBTOTAL.............................................. 49.538
-----------------------------------------------------------
Labor-related share of capital costs...................... 4.173
===========================================================
Total................................................. 53.711
------------------------------------------------------------------------

(2) Wage and Salaries
The wages and salaries weight for the ESRD composite rate labor-
related share includes salaries for both direct and indirect patient
care. We computed a weight for wages and salaries for direct patient
care from Worksheet B of the Medicare cost report. However, Worksheet B
only includes direct patient care salaries. We had to derive an
estimate for non-direct patient care salaries in order to calculate the
market basket weight. We first computed the ratio of salaries to total
cost in each cost center from the trial balance of the cost report
(Worksheet A). We applied these ratios to the costs reported on
Worksheet B for the corresponding cost centers to obtain the total
wages and salaries for each composite rate cost center. These salaries
were then summed and added to the direct patient care salary amount
that is reported separately. When divided by total composite rate
costs, the result is a cost weight for total salaries. This increased
the expenditure weight from 34.154 percent for direct patient care
salaries to 38.808 percent for total salaries.
(3) Employee Benefits
The benefits weight was derived from the BES since a benefit share
for all employees is not available for the ESRD Medicare cost reports.
The cost reports only reflect benefits for direct patient care. We
applied the benefits proportion of wages and salaries for kidney
dialysis centers from the BES to the salary amount calculated from the
cost reports as described above. This resulted in a benefit weight that
was 1.758 percentage points larger (8.850 versus 6.822) than the
benefits for direct patient care calculated from the cost reports. To
avoid double counting and to ensure all of the market basket weights
still totaled 100 percent, we removed this additional 1.758 percentage
points for benefits from pharmaceuticals, administrative and general,
supplies, laboratory services, housekeeping and operations, and the
capital components. This calculation reapportions the benefits expense
for each of these categories using a method similar to the method used
for distributing non-direct patient care salaries as described above.
This method approximates the proportion of each cost center's costs
that are benefits using available salary expenditure data.
(4) Professional Fees
Professional fees include accounting, bookkeeping, and legal
expenses. We derived the weight for professional fees from the BES
since the Medicare cost reports do not include this level of detail. We
first calculated the ratio of BES professional fees for kidney dialysis
centers to total BES wages and salaries for kidney dialysis centers. We
applied this ratio to the total wages and salaries share calculated
from the cost reports to estimate the proportion of ESRD facility
professional fees. The resulting weight was 0.903 percent. To avoid
double counting, this proportion was deducted from the calculated
weight for the administrative and other expenditure category, where the
fees would have been reported on the Medicare cost reports.
(5) Housekeeping and Operations
The housekeeping and operations cost category includes expenses
such as janitorial and building services costs. We developed a market
basket weight for this category using data from both Worksheets A and B
of the cost reports. Worksheet B combines the capital-related costs for
buildings and fixtures with the operation and maintenance of plant
(operations) and housekeeping cost centers, so we were unable to
calculate a weight directly from Worksheet B. Accordingly, we computed
the proportion of housekeeping and operations costs, to the combination
of total capital-related costs for buildings and fixtures and
housekeeping and operations costs

[[Page 45798]]

using Worksheet A because these categories are individually reported on
this worksheet. We then subtracted this share from the proportion of
Worksheet B total capital-related costs to yield a weight for
housekeeping and operations. To avoid double counting, we subtracted
utilities expenditures (which are included in the utilities weight
shown in Table 24) from the housekeeping and operations weight, as well
as the non-direct patient care salaries and benefits share associated
with the operations and housekeeping cost centers from Worksheet A. The
resulting market basket weight for housekeeping and operations was
1.247 percent.
(6) Labor-Related Share for Capital-Related Expenses
The labor-related share for capital-related expenses (46 percent of
ESRD facilities' adjusted capital-related building and equipment
expenses) reflects the proportion of ESRD facilities' capital-related
building and equipment expenses that we believe varies with local area
wages.
Capital-related expenses are affected in some proportion by local
area labor costs (such as construction worker wages) that are reflected
in the price of the capital asset. However, many other inputs that
determine capital costs are not related to local area wage costs, such
as interest rates. Thus, it is appropriate that capital-related
expenses would vary less with local wages than would the operating
expenses for ESRD facilities. The 46 percent figure is based on
regressions run for the Prospective Payment System for Inpatient
Hospital Capital-Related Costs in 1991 (56 FR 43375).
We use a similar methodology to calculate capital-related expenses
for the labor-related shares for rehabilitation facilities, psychiatric
facilities, long-term care facilities, and SNFs. (See Rehabilitation
Facility Prospective Payment System for FY 2006, Part II (70 FR 30233)
and Prospective Payment System and Consolidated Billing for Skilled
Nursing Facilities-Update (66 FR 39585)).
Table 26 provides a comparison of the current and proposed labor/
nonlabor portions of the ESRD base composite rate.

TABLE 26.--Comparison of the Current and Proposed Labor/Nonlabor
Portions of the ESRD Base Composite Rate
------------------------------------------------------------------------
Hospital-
based Independent
------------------------------------------------------------------------
Base Composite Rate......................... $132.41 $128.35
Current Labor Share......................... 48.70 52.17
Current NonLabor Share...................... 83.71 76.18
............ ............
Proposed Labor Share (53.711 percent)....... 71.12 68.94
Proposed NonLabor Share..................... 61.29 59.41
------------------------------------------------------------------------

As indicated earlier in this discussion, the ESRD market basket was
derived from CY 1997 data. As with other payment systems, we would
propose updating the labor share of the composite payment when the
components of the ESRD market basket are rebased to reflect more recent
data.
g. Implementation of Revised Composite Wage Indexes
In the section below, we explain how each ESRD facility's new
composite payment rate would be determined to reflect the proposed 2
year transition, based on section 623(d)(1) of the MMA's requirement
that the application of any revised geographic index be phased in over
a multi-year period.
(1) Hospital Data Used
In this proposed rule, for purposes of adjusting the labor-related
portion of the ESRD composite rate beginning January 1, 2006, we
propose to use acute care hospital inpatient wage index data. This data
was generated from cost reporting periods beginning FY 2002, and is the
most recent complete data available.
To determine the applicable ESRD wage index values, we are
proposing to use the acute care hospital inpatient wage data without
regard to any approved geographic reclassification under section
1886(d)(8) or (d)(10) of the Act, which only applies to hospitals that
are paid under the IPPS. We note this policy is consistent with the
area wage adjustments used in all other non-acute care facility PPSs
(such as, SNFs, IPPSs, HHAs, and IRFs).
The proposed wage index values that would be applicable to the ESRD
composite rate for services furnished on or after January 1, 2006, are
shown in Tables 27 and 28 in this proposed rule.
(2) Labor Market Areas With No Hospital Wage Data
In adopting OMB's CBSA designations, we identified a small number
of ESRD facilities in both urban and rural geographic areas where there
were no hospitals, and, thus, no hospital wage index data on which to
base the calculations of the FY 2006 ESRD wage index. The first
situation is rural Massachusetts. Because there is no reasonable proxy
for rural data within Massachusetts, we are proposing to use last
year's acute care hospital wage index value for rural Massachusetts.
The second situation involves ESRD facilities in urban areas in
Hinesville, GA (CBSA 25980) and Mansfield, OH (CBSA 31900). We propose
to use a wage index based on the wage indexes in all of the other urban
areas within the state to serve as a reasonable proxy for the urban
areas without hospital wage index data. Specifically, we are proposing
to use the average wage index for all urban areas within the State as
the urban wage index value for purposes of the ESRD wage index for
these areas. We solicit comments on these approaches to calculating the
wage index values for areas without hospitals (and, thus, without
hospital wage data) for FY 2006 and subsequent years.
(3) Use of Floor/Ceiling Values
As discussed in this preamble, the current wage index values
applied to the labor share of the ESRD composite payment rate are
restricted at the high and low ends with a floor of 0.9000 and a cap of
1.3000. The effects of these restrictions have been to overpay
facilities in low wage areas and underpay facilities in high wage
areas. The floor and cap were originally intended to remain in effect
only until the transition from use of BLS wage date to hospital wage
data ended. However, since the transition was never completed because
of the statutory restrictions discussed above in this

[[Page 45799]]

preamble, the floor and cap have remained in effect since 1983.
The basis for the 1.3000 wage index cap was to ensure that we did
not pay any more than the allowable reasonable charge per treatment
that was in effect before the composite payment rate system was
implemented. Since the allowable reasonable charge screen no longer has
any relevance to the current composite rate, and because of the effect
it has had on restricting payment in high cost wage areas, we are
proposing to eliminate the wage index cap.
However, because of the potential adverse impact that removing the
wage index floor could have on access to dialysis for ESRD
beneficiaries, we are proposing to maintain a wage index floor at this
time. We note that when we established the 0.9000 floor beginning in
1983, it was intended that the floor would be phased out by the end of
the transition. Because the floor has been in place for so long, we are
concerned that eliminating the floor entirely could decrease payments
to facilities in some areas significantly. However, we believe that a
floor of 0.9000 may be too high under the proposed revision to the
labor market areas, since a substantial number of wage areas (172 out
of 481 wage areas) have wage index values less than 0.9000. The current
wage areas used for adjusting composite rate payments have only 83
areas with wage index values below 0.9000.
Given that the distribution of wage index values has changed so
significantly, we are proposing to reduce the floor to 0.8500 for CY
2006 and to 0.8000 for CY 2007 as we transition to the new geographic
areas and wage indexes. This would result in application of the wage
index floor to 17.7 percent of facilities that would otherwise have
been subject to the current 0.9000 floor in CY 2006 and to 10.0 percent
of facilities in CY 2007. It would also protect 86 geographic areas at
a floor of 0.8500 in CY 2006 and 36 geographic areas at a floor of
0.8000 in CY 2007.
Although we are proposing to maintain a wage index floor through CY
2007, our goal is to eliminate the wage index floor in the future.
Therefore, for CY 2008 we would re-evaluate the need for continuing the
floor. We are soliciting comment on this issue, especially in light of
the fact the any wage index changes must be budget neutral for
aggregate payments to facilities.
(4) Transition Period
Section 623(d) of MMA added section 1881(b)(12)(D) of the Act which
requires that any revisions to the geographic adjustments applied to
the composite payment rate must be phased-in over a multiyear period.
In determining the best approach to phasing-in the proposed new wage
index adjustments, we considered not only the immediate impact on
payments from revising the wage index values, but also the impact on
payments over time because of our inability to update the wage index.
Facilities in areas where wages have increased at a higher rate than
the national average may have been disadvantaged by the continued use
of outdated wage data and geographic designations to adjust the
composite payment rate.
With both of these considerations in mind, we are proposing a two-
year transition under which facilities would be paid the higher of the
new wage-adjusted composite rate, or a 50-50 blend of the current wage
adjusted composite rate and the new wage-adjusted composite rate. This
proposed transition would allow facilities that may have been
disadvantaged under the current wage index adjustment to move
immediately to the new wage adjustment. It also provides for a
reasonable transition period for other facilities. Given the age of the
current wage index adjustments, we believe it is appropriate to move as
quickly as possible to the revised updated wage adjustments. Since we
are proposing to maintain the wage index floor during the transition
period, we believe the overall impact to facilities will be mitigated.
Also, as discussed in the following section, the proposed budget
neutrality adjustment will ensure that the level of aggregate payments
to ESRD facilities is maintained. We note that our proposal to allow
some facilities to move directly to the new wage-adjusted composite
rate will have some impact on the level of the budget neutrality
adjustment. However, we estimate that the overall effect on total
payments to facilities would not be significant. For example, the
impact on aggregate payments to rural facilities would be a decrease of
about 0.2 percent and an increase of about 0.1 percent for urban
facilities. This occurs because all of the facilities that are
currently subject to the 1.300 wage index cap are located in urban
areas.
We also considered alternative approaches for transitioning
facilities to the proposed updated wage adjustments. Another approach
would be to apply the proposed 50-50 transition to all facilities,
whether or not they do better using the updated wage index adjustment.
This approach would treat all facilities equally for transition
purposes, but would mean that those facilities that are currently
underpaid because of the current outdated wage index adjustment would
have to wait until the transition was completed to receive the higher
payment to which they are entitled.
An alternative to the proposed two-year transition would be to
adopt a three-year transition. This would allow facilities that would
receive lower payments using the revised wage adjustment to have an
additional year to adapt to the lower payment amount. This approach, if
coupled with allowing facilities that do better to move immediately to
the new wage index, would have a more significant impact on the budget
neutrality adjustment required by MMA. (See budget neutrality
discussion below.).
We are specifically seeking comments on the proposed transition or
any of the alternative approaches mentioned above.
(5) ESRD Wage Index Budget Neutrality
Section 623(d) of MMA amended section 1881(b)(12)(E)(i) of the Act
which requires that any revisions to the ESRD composite rate payment
system as a result of the MMA provision (including the geographic
adjustment) be made in a budget neutral manner. This means that
aggregate payments to ESRD facilities in CY 2006 should be the same as
aggregate payments would have been if we had not made any changes to
the geographic adjusters. In order to achieve budget neutrality, we are
proposing to apply a budget neutrality adjustment factor directly to
the revised ESRD wage index values, rather than applying the adjustment
to the base composite payment rates. For payment purposes, we believe
this is the simplest approach since it allows us to maintain a base
composite rate for hospital-based facilities and one for independent
facilities during the transition from the current wage adjustments to
the revised wage adjustments.
In order to compute the proposed wage index budget neutrality
adjustment factor, we used treatment counts from the CY 2004 billing
data and facility-specific 2005 composite payment rates. We note that
this file is currently only about 85 percent complete. For the final
rule, we expect to use the most complete CY 2004 file available. Using
the CY 2004 billing data, we first computed the estimated total dollar
amount that ESRD facilities would have received in CY 2006 had there
been no changes to the ESRD wage index. This amount becomes the
estimated target amount of expenditures for all ESRD facilities. Then
we

[[Page 45800]]

computed the estimated dollar amount that would be paid to the same
ESRD facilities using the revised ESRD wage index. After comparing
these two dollar amounts, we calculate an adjustment factor to the ESRD
wage index as the factor that when multiplied by the revised ESRD wage
index will result in the target amount of expenditures for all ESRD
facilities. Since the revised wage index values are only applied to the
labor-related portion of the composite payment rate, we computed the
adjustment based on that proportion (that is, 53.711 percent). We
applied the estimated budget neutrality adjustment factor to the
revised wage index values and then simulated payments for CY 2006 to
ensure that estimated aggregate payments to ESRD facilities would
remain budget neutral. This proposed adjustment factor would be
1.023024.
Each ESRD wage index value has been adjusted by this factor to
establish the budget neutral wage index values that we propose to use
to adjust the labor portion of the composite payment rate beginning
January 1, 2006. (See Tables 27 and 28.) By using these adjusted ESRD
wage index values, the estimated aggregate payments to ESRD facilities
will meet the estimated target expenditure amount.
This calculation becomes more complex because of our proposed
transition policy. Under that policy an ESRD facility that would
receive a higher composite rate payment using the new geographic
adjustment would receive 100 percent of that rate in the first year of
transition. However, if an ESRD facility's composite rate using the new
geographic adjustment is less than its current rate, then that facility
will receive 50 percent of the composite rate payment it would have
received using the current wage index and 50 percent of the composite
rate using the revised wage index. To account for the differential
payments, we compare the target amount of expenditures for all ESRD
facilities in an iterative fashion until the time that the ESRD wage
index adjustment factor would result in the target amount of
expenditures for all ESRD facilities. This is shown in column 4 of
Table 37 in section V. (Regulatory Impact Analysis) of this proposed
rule. In aggregate the change to all ESRD facilities would be 0.0
percent. The distributive effect of the revised ESRD wage index can be
seen in the various impact table groupings in column 4 of Table 37 in
section V. of this proposed rule.
Another element of the proposed transition policy would be a
proposed wage index floor of 0.8500. Using the method described above
to compute the budget neutrality factor, makes it necessary to apply
the budget neutrality factor to this floor which would result in a
proposed adjusted floor of 0.8696.
(6) Transition Examples
In the following examples, we show the application of revised wage
adjusted composite payment rates during the proposed two year
transition period:
Example 1--Neighborhood Dialysis Center is an independent
dialysis facility located in Baltimore County, Maryland. As the
Crosswalk Table (see addendum F) reveals, Baltimore County was
previously classified as part of the Baltimore MSA, and is still
classified as an urban county under the new CBSA classification system.
The current wage-adjusted composite payment rate for Neighborhood
Dialysis Center is $134.93.
Because Neighborhood Dialysis Center is located within the
Baltimore-Towson MD CBSA (code 12580), its new wage index, which has
been adjusted for budget neutrality, is 1.0135. Applying the wage index
of 1.0135 to the revised labor-related component of the base composite
rate for independent facilities shown in Table 26, yields a labor
adjusted payment rate of $129.28.

($68.94 x 1.0135) + $59.41 = $129.28

This labor adjusted payment rate of $129.28 is less than the wage-
adjusted composite rate of $134.93 currently applicable to Neighborhood
Dialysis Center. In accordance with our proposed two year transition,
this facility would receive a wage-adjusted composite payment rate
beginning January 1, 2006 equal to 50 percent of its current wage-
adjusted rate plus 50 percent of its new wage-adjusted rate. The CY
2006 blended wage-adjusted rate for this facility would be $132.11.

($0.50 x $134.93) + (0.50 x $129.28) = $132.11

The 8.9 percent drug add-on adjustment and relevant case-mix
adjustments (related to the budget neutrality adjustment) would be
applied to this blended rate.
Example 2--Serve U Well is a hospital-based dialysis
facility located in Morrow County, Ohio. The Crosswalk table (see
Addendum F) reveals that Morrow County was previously classified as
rural, but is now classified urban as part of the Columbus, OH CBSA,
code 18140. The new CBSA wage index applicable to Serve U Well,
adjusted for budget neutrality, is 1.0077. Applying the wage index of
1.0077 to the revised labor related component of the base composite
rate for hospital-based facilities shown in Table 26 yields a wage-
adjusted composite rate of $132.96.

($71.12 x 1.0077) + $61.29 = $132.96

Serve U Well's current rural Ohio wage-adjusted composite payment
rate is $128.66. Because the revised wage-adjusted composite payment
rate of $132.96 is greater than $128.66, Serve U Well would receive 100
percent of its new wage-adjusted composite payment rate of $132.96
beginning January 1, 2006.
As in the previous example, the 8.9 percent drug add-on adjustment
and relevant case-mix adjustments (related to the budget neutrality
adjustment) would be applied to this new wage-adjusted composite rate.
(7) Frequency of Update
Section 623(d)(1) of the MMA provides that any revised wage index
used in connection with the composite payment rates must be phased-in
over a multiyear period. We are proposing a two-year transition period
to the new wage indexes based on CBSAs. An issue remains as to how
frequently the new wage index values should be updated to reflect
changes in area wage levels. These changes would be detected through
our receipt of hospital wage and employment data obtained from the
Medicare hospital cost reports subsequent to FY 2005. In order to keep
payments to ESRD facilities as up-to-date as possible, we propose to
update the wage index on an annual basis, as part of the overall ESRD
payment update.
(8) Wage Index Table
The following two tables show the proposed ESRD wage index for
urban areas (Table 27) and rural areas (Table 28).

BILLING CODE 4120-01-P

[[Page 45801]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.003

[[Page 45802]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.004

[[Page 45803]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.005

[[Page 45804]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.006

[[Page 45805]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.007

[[Page 45806]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.008

[[Page 45807]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.009

[[Page 45808]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.010

[[Page 45809]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.011

[[Page 45810]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.012

[[Page 45811]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.013

[[Page 45812]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.014

[[Continued on page 45813]]

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

[[pp. 45813-45862]] Medicare Program; Revisions to Payment Policies Under the
Physician Fee Schedule for Calendar Year 2006

[[Continued from page 45812]]

[[Page 45813]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.015

[[Page 45814]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.016

[[Page 45815]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.017

[[Page 45816]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.018

[[Page 45817]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.019

[[Page 45818]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.020

[[Page 45819]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.021

[[Page 45820]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.022

[[Page 45821]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.023

[[Page 45822]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.024

[[Page 45823]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.025

[[Page 45824]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.026

[[Page 45825]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.027

[[Page 45826]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.028

[[Page 45827]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.029

[[Page 45828]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.030

[[Page 45829]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.031

[[Page 45830]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.032

[[Page 45831]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.033

[[Page 45832]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.034

[[Page 45833]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.035

[[Page 45834]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.036

[[Page 45835]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.037

[[Page 45836]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.038

[[Page 45837]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.039

[[Page 45838]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.040

[[Page 45839]]

[GRAPHIC] [TIFF OMITTED] TP08AU05.041

BILLING CODE 4120-01-C

[[Page 45840]]

Table 28.--Proposed ESRD Wage Index for Rural Areas Based on CBSA Labor
Market Areas
------------------------------------------------------------------------
Wage
CBSA code Nonurban area index
------------------------------------------------------------------------
1.......................... Alabama........................... 0.8696
2.......................... Alaska............................ 1.2266
3.......................... Arizona........................... 0.8979
4.......................... Arkansas.......................... 0.8696
5.......................... California........................ 1.1107
6.......................... Colorado.......................... 0.9605
7.......................... Connecticut....................... 1.2066
8.......................... Delaware.......................... 0.9827
10......................... Florida........................... 0.8796
11......................... Georgia........................... 0.8696
12......................... Hawaii............................ 1.0805
13......................... Idaho............................. 0.8696
14......................... Illinois.......................... 0.8696
15......................... Indiana........................... 0.8829
16......................... Iowa.............................. 0.8698
17......................... Kansas............................ 0.8696
18......................... Kentucky.......................... 0.8696
19......................... Louisiana......................... 0.8696
20......................... Maine............................. 0.9056
21......................... Maryland.......................... 0.9304
22......................... Massachusetts..................... 1.0451
23......................... Michigan.......................... 0.9074
24......................... Minnesota......................... 0.9394
25......................... Mississippi....................... 0.8696
26......................... Missouri.......................... 0.8696
27......................... Montana........................... 0.9036
28......................... Nebraska.......................... 0.8865
29......................... Nevada............................ 0.9283
30......................... New Hampshire..................... 1.0923
32......................... New Mexico........................ 0.8843
33......................... New York.......................... 0.8696
34......................... North Carolina.................... 0.8764
35......................... North Dakota...................... 0.8696
36......................... Ohio.............................. 0.8988
37......................... Oklahoma.......................... 0.8696
38......................... Oregon............................ 1.0056
39......................... Pennsylvania...................... 0.8696
42......................... South Carolina.................... 0.8840
43......................... South Dakota...................... 0.8696
44......................... Tennessee......................... 0.8696
45......................... Texas............................. 0.8696
46......................... Utah.............................. 0.8696
47......................... Vermont........................... 1.0067
48......................... Virginia.......................... 0.8696
49......................... Washington........................ 1.0699
50......................... West Virginia..................... 0.8696
51......................... Wisconsin......................... 0.9698
52......................... Wyoming........................... 0.9426
------------------------------------------------------------------------

(9) Crosswalk Table
The crosswalk table for the MSA and CBSA can be found in Addendum F
to this proposed rule.
4. Proposed Revisions to Sec. 413.170 (Scope) and Sec. 413.174
(Prospective Rates for Hospital-Based and Independent ESRD Facilities)
Under section 623 of the MMA, we propose to revise Sec. 413.170(b)
to specify that this subpart provides procedures and criteria under
which only a pediatric facility may receive an exception.
Also under section 623 of the MMA, we propose to revise Sec.
413.174 to reflect the changes in the additional payment for separately
billable drugs.
5. Proposed Revisions to the Composite Payment Rate Exceptions Process
[If you choose to comment on issues in this section, please include the
caption ``ESRD-Exceptions Process'' at the beginning of your comments.]
The current regulations at Sec. 413.180 through Sec. 413.192
contain the procedures for requesting exceptions to ESRD facility
composite payment rates, and establish five criteria for approval of
exception requests. The five criteria are as follows:
Atypical service intensity (Sec. 413.184).
Isolated essential facility (Sec. 413.186).
Extraordinary circumstances (Sec. 413.188).
Self-dialysis training costs (Sec. 413.190).
Frequency of dialysis (Sec. 413.192).
Under section 1881(b)(7) of the Act, when a facility's costs were
higher than the prospectively determined composite rate, we could,
under certain conditions, grant the facility an exception to its
composite payment rate and set a higher prospective rate. The facility
had to show, on the basis of projected cost and utilization trends,
that it would have an allowable cost per treatment higher than its
prospective composite payment rate and that any excess costs were
attributable to one or more of the specific exception criteria.
As explained further below, ESRD facility exception rates in effect
on December 31, 2000, or those that were subsequently approved based on
an application under section 422(a)(2)(B) of BIPA, (collectively
hereinafter termed ``existing exception rates''), will remain in effect
under section 422(a)(2)(C) of BIPA as long as the exception rate
exceeds the facility's updated composite payment rate.
Section 623 of the MMA amended BIPA to provide that the prohibition
on exceptions to the ESRD composite rate does not apply to pediatric
facilities that do not have an exception rate in effect on October 1,
2002. As a result, only pediatric facilities can now qualify for
exception rates. We do not intend for the proposed regulation changes
detailed below to limit the exception criteria under which a pediatric
facility may qualify. However, we believe that pediatric facilities
would not qualify for an exception under most of the existing exception
criteria because of the uniqueness of their pediatric patient
population (at least 50 percent) and, in the past, ESRD facilities with
high percentages of pediatric patients only qualified for exceptions
under the ``atypical patient mix'' criterion. Therefore, we are
proposing to revise the regulations by eliminating the other exception
criteria (Isolated essential facilities, Extraordinary circumstances,
and Frequency of dialysis) specified in Sec. 413.182(b), (c), and (e).
However, we are proposing to retain the exception criterion for self-
dialysis training costs under Sec. 413.182(d) because some pediatric
facilities may qualify for an exception on that basis.
a. Statutory Changes
Section 422 of BIPA 2000, prohibited us from providing for any
further composite rate exceptions on or after December 31, 2000;
allowed one final opportunity for ESRD facilities that did not apply
for an exception during 2000 to apply for one by July 1, 2001; and
provided for approved exceptions (either those in effect or those that
were approved based on subsequent applications) to continue in effect
as long as the rate exceeds the updated composite rate.
By prohibiting future exceptions to the composite rate for ESRD
facilities, we believe the Congress intended to make the ESRD composite
rate payment system more compatible with other Medicare PPSs that do
not allow exceptions to their payment rates. By providing for the
continuation of existing exception rates as long as those rates exceed
the updated case-mix adjusted composite rate, we believe the Congress
intended, in effect, to provide for the transition of most ESRD
facilities to payment under the composite rate payment system.
In response to ESRD facility concerns about the current composite
rate payment methodology, the Congress enacted section 623 of the MMA,
which revised ESRD facility prospective composite payment rates. As a
result, effective January 1, 2005, ESRD facility prospective composite
payment rates were increased 1.6 percent and include a drug add-on of
8.7 percent. These increases were implemented in the PFS final rule
published on November 15, 2004 (69 FR 66319-66320). Section 623 also
amended section 422(a)(2) of BIPA to provide that the prohibition on
exceptions to the ESRD composite rates does not apply as of October 1,
2002, to pediatric facilities that do not have an exception rate in
effect on October 1, 2002--in effect restoring the exception process
for pediatric facilities. Pediatric facilities are defined as ``renal
facilities at least 50 percent of whose patients are individuals under
18 years of age.''
Existing exception rates are protected under section 422(a)(2)(C)
of BIPA 2000.

[[Page 45841]]

The ``protection'' clause for existing exception rates provides that
exception rates in effect on December 1, 2000 (or approved based on an
application by July 1, 2001) shall remain in effect as long as the
facility's exception rate is higher than the updated composite rate.
Pediatric ESRD facility exception rates granted under the provisions of
section 623 of the MMA are not subject to the ``protection'' clause for
existing exception rates.
b. Summary of Proposed Changes to Part 413, Subpart H
As a result of the statutory changes discussed above, we are
proposing to revise both the content and the organization of the
existing regulations at 42 CFR part 413, subpart H (Payment for ESRD
Services and Organ Procurement Costs) by limiting certain
qualifications and clarifying the regulations. Currently, all of the
Medicare rules for requesting exceptions to composite rate payments for
covered outpatient maintenance dialysis treatments can be found at
Sec. 413.180 through Sec. 413.192. We propose to revise the current
regulations at part 413, subpart H by--
Adding a definition of a ``pediatric facility'' (in
accordance with section 422(a)(2)of BIPA 2000, as amended by section
623(b) of the MMA) to mean a renal facility at least 50 percent of
whose patients are individuals under 18 years of age;
Removing existing exception criteria that are no longer
applicable; and
Adjudicating future exception requests in accordance with
the proposed revised exception criteria.
(1) Proposed Revisions to Sec. 413.180 (Procedures for Requesting
Exceptions to Payment Rates)
In response to the changes made by section 422 of BIPA 2000 and
section 623 of MMA, we are proposing significant changes to the
existing regulations at Sec. 413.180 through Sec. 413.192 regarding
ESRD exception criteria and application procedures. Under our current
regulations, existing exception rates that were approved prior to
December 31, 2000 (or those approved during the window that closed on
July 1, 2001) would remain in effect as long as the conditions under
which the exception was granted have not changed and as long as the
facility files a request to retain the exception rate with its fiscal
intermediary during the 30-day period before the opening of an
exception cycle (and the request is approved by the fiscal
intermediary.) Even though pediatric exceptions are not subject to the
``protection'' clause under section 422(a)(2)(C) of BIPA, we propose to
continue all exception rates in effect on the same basis. Since section
422(a)(2)(B) of BIPA allows existing exception rates to continue in
effect as long as the exception rate exceeds the facility's updated
composite payment rate, we expect that the facilities will compare
their existing exception rates to their basic case-mix adjusted
composite rates to determine which is the best payment rate for their
facility. We expect that each ESRD facility would choose to be paid at
the higher of its existing exception rate or its basic case-mix
composite rate (which includes all the payment adjustments required
under section 623 of the MMA). If the facility retains its exception
rate, the rate is not subject to any of the adjustments specified in
section 623 of the MMA. We believe the determination as to whether an
ESRD facility's exception rate per treatment will exceed its average
case-mix adjusted composite rate per treatment is best left to the
affected entity. An ESRD facility that has an existing exception rate
may give up that rate if it determines that it should be paid instead
under the case-mix adjusted composite rate methodology.
In Sec. 413.180, we propose to revise our regulations to provide
that each ESRD facility must notify its fiscal intermediary (in
writing) if it wishes to give up its exception rate. The facility would
be paid based on its case-mix adjusted composite payment rate beginning
thirty days after the intermediary's receipt of written notification
that the facility wishes to give up its exception rate. Once a facility
notifies its fiscal intermediary that it wishes to give up its
exception rate, that decision could not be subsequently rescinded or
reversed. We also propose to revise paragraph (b) of this section to
provide that ESRD facilities that retain their existing exception rates
do not need to notify their intermediaries. Therefore, we propose to
remove the last sentence from paragraph (b) that states, ``However, a
facility may only request an exception or seek to retain its previously
approved exception rate when authorized under the conditions specified
in paragraphs (d) and (e) of this section.''
In the past, an ESRD facility could request an exception to its
prospective composite payment rate within 180 days of the effective
date of its new composite rate(s) or the date on which we opened a
specific exception window. Because only pediatric facilities can now
file for exceptions, we expect to receive a minimal number of exception
applications. In this section, we propose to revise paragraph (d) to
remove the requirement that an application for an exception be filed
within the 180-day window because we believe the small volume of
applications will make it administratively feasible for us to accept
applications on a rolling basis. Further, we are proposing to revise
paragraph (d) to state that a pediatric ESRD facility may request an
exception to its composite payment rate at any time after it is in
operation for at least 12 consecutive months.
We are proposing to permit pediatric ESRD facilities to file
exception requests at any time. We also propose to change our
regulations to continue pediatric facility exception rates granted
under section 623 of the MMA (hereinafter referred to as ``pediatric
facility exception rates'') in the same way as existing exception
rates. Specifically, we are proposing that pediatric facility exception
rates would remain in effect until the facility notifies its fiscal
intermediary that it wishes to give up its rate because its case-mix
adjusted composite rate is higher. Therefore, we propose to eliminate
paragraph (e) of this section, entitled ``Criteria for retaining a
previously approved exception request'' and replace it with paragraph
(f) (Completion of requirements and criteria) of this section. We are
proposing to eliminate paragraph (e) because ESRD facilities that have
an approved exception rate (either an existing exception rate or a
pediatric facility exception rate) and elect to retain it do not need
to notify their intermediaries. Current paragraph (f), entitled,
``Documentation for a payment rate exception request'', would be
redesignated as proposed paragraph (e). We are proposing to clarify
existing regulations by indicating that the applicant must include in
its documentation a copy of the most recent cost report filed in
accordance with Sec. 413.198. As a result of these proposed changes to
this section, we propose to revise the remaining paragraphs as follows:
Current paragraph (g) would be redesignated as proposed
paragraph (f).
Current paragraph (h) would be redesignated as proposed
paragraph (g).
Current paragraph (i) would be redesignated as proposed
paragraph (h).
Current paragraph (j) provides the period of an exception
approval. We would redesignate paragraph (j) as proposed paragraph (i).
We propose to revise the redesignated paragraph to state that an
approved exception payment rate applies for the period from the date
the complete exception request

[[Page 45842]]

was filed with the facility's fiscal intermediary until thirty days
after the intermediary's receipt of the facility's letter notifying the
intermediary of the facility's request to give up its exception rate
and become subject to the current composite payment rate methodology.
Once a facility decides not to retain its current exception rate (and
puts that decision in writing), that decision cannot be subsequently
rescinded or reversed.
Current paragraph (k) would be removed.
Current paragraph (l) would be redesignated as proposed
paragraph (j).
Current paragraph (m) would be redesignated as proposed
paragraph (k). In the past, a pediatric facility denied an exception
rate would have to wait until a subsequent exception window opened to
file a new request. We are proposing to revise redesignated paragraph
(m) to state that a pediatric ESRD facility that has been denied an
exception rate may immediately file another exception request. Any
subsequent exception request would be required to address and document
the issues cited in our denial letter.
(2) Proposed Revisions to Sec. 413.182 (Criteria for Approval of
Exception Requests)
We propose to revise this section to state that CMS may approve
exceptions to a pediatric ESRD facility's prospective payment rate if
the pediatric facility did not have an approved exception rate as of
October 1, 2002. The proposed revised section would also state that the
pediatric facility would be required to demonstrate, by convincing
objective evidence, that its total per treatment costs are reasonable
and allowable under the relevant cost reimbursement principles of part
413 and that its per treatment costs in excess of its payment rate
would be directly attributable to any of the following criteria:
Pediatric patient mix, as specified in Sec. 413.184.
Self-dialysis training costs in pediatric facilities, as
specified in Sec. 413.186.
In the future, pediatric facilities would file for an exception
under the proposed revised exception criteria in revised Sec. 413.184
(Payment exception: Pediatric patient mix) and redesignated Sec.
413.190 (Payment exception: Self-dialysis training costs in pediatric
facilities). (We are proposing to revise Sec. 413.190 and redesignate
it as Sec. 413.186, see discussion below.).
(3) Proposed Revisions to Sec. 413.184 (Payment Exception: Atypical
Service Intensity (Patient Mix))
Because only pediatric ESRD facilities (those with at least a 50
percent patient mix) may qualify for an exception rate, we are
proposing to rename Sec. 413.184 to read, ``Payment exception:
Pediatric patient mix''. We also propose to revise paragraph (a) of
this section to specify that to qualify for an exception to its
prospective payment rate based on its pediatric patient mix, a facility
would be required to demonstrate that--
At least 50 percent of its patients are individuals under
18 years of age;
Its nursing personnel costs are allocated properly between
each mode of care;
The additional nursing hours per treatment are not the
result of an excess number of employees;
Its pediatric patients require a significantly higher
staff-to-patient ratio than typical adult patients; and
These services, procedures, or supplies and its per
treatment costs are clearly prudent and reasonable when compared to
those of pediatric facilities with a similar patient mix.
The ``Atypical service intensity'' criterion is the one under which
exceptions for facilities that treated a high proportion of pediatric
patients were granted in the past. In order to receive approval for an
exception rate, pediatric facilities would still need to meet many of
the same criteria previously required under Sec. 413.184 for
``Atypical service intensity.''
To better match the patient listing documentation requirements to
the characteristics of pediatric ESRD facilities, we are proposing to
eliminate five categories currently required in Sec. 413.184(b)
(Documentation) and replace those items with a revised list. Under the
proposed revised paragraph, a facility would be required to submit a
listing of all outpatient dialysis patients (including all home
patients) treated during its most recently completed and filed cost
report (cost reporting requirements under Sec. 413.198) showing--
Age of patients, and the percentage of patients under the
age of 18;
Individual patient diagnosis;
Home patients and ages;
In-facility patients, staff assisted, or self-dialysis;
Diabetic patients; and
Patients isolated because of contagious disease.
(4) Proposed Removal of Sec. 413.186 (Payment Exception: Isolated
Essential Facility)
Since pediatric facilities are the only ESRD facilities that can
now apply for exceptions, we are proposing to remove Sec. 413.186 to
conform with the elimination of Sec. 413.182(b), (c) and (e) as
discussed above and redesignate Sec. 413.190 as the new Sec. 413.186.
We would also rename the section to read, ``Payment exception: Self-
dialysis training costs in pediatric facilities''. No further changes
are proposed to Sec. 413.186.
(5) Proposed Removal of Sec. 413.188 (Payment Exception: Extraordinary
Circumstances)
We are proposing to remove this Sec. 413.188 to conform with the
elimination of elimination of Sec. 413.182(b), (c) and (e) as
discussed above.
(6) Proposed Redesignation of Sec. 413.190 (Payment Exception: Self-
Dialysis Training Costs)
We propose to continue to recognize exceptions for self-dialysis
training costs under Sec. 413.190 only for pediatric facilities, and
to rename this section, ``Payment exception: Self-dialysis training
costs in pediatric facilities.'' We are proposing to change the name to
conform with the current statute that prohibits exceptions for
facilities other than pediatric ESRD facilities. We are also proposing
to redesignate this section as Sec. 413.186. (As discussed above, we
are proposing to remove existing Sec. 413.186.) The current regulatory
language in Sec. 413.190 (proposed to be redesignated as Sec.
413.186) would remain unchanged.
(7) Proposed Removal of Sec. 413.192 (Payment Exception: Frequency of
Dialysis)
We are proposing to remove this section to conform with the
elimination of Sec. 413.182(b), (c) and (e) as discussed above.

H. Payment for Covered Outpatient Drugs and Biologicals

[If you choose to comment on issues in this section, please include the
caption ``Payment for Covered Outpatient Drugs and Biologicals'' at the
beginning of your comments.]
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 not paid on a cost or prospective

[[Page 45843]]

payment basis generally fall into three categories:
Drugs furnished incident to a physician's service.
DME drugs.
Drugs specifically covered by statute (immunosuppressive
drugs, for example).
Beginning in CY 2005, the vast majority of Medicare Part B drugs
not paid on a cost or prospective payment basis are paid under the ASP
methodology. The ASP methodology is based on data submitted to us
quarterly by manufacturers. In addition to the payment for the drug,
Medicare currently pays a dispensing fee for inhalation drugs, a
furnishing fee for blood clotting factors, and a supplying fee for
certain Part B drugs.
This section of the preamble discusses proposed changes and issues
related to the determination of the payment amounts for covered Part B
drugs and the separate payments allowable for dispensing inhalation
drugs, furnishing blood clotting factor, and supplying certain other
Part B drugs. This section of the preamble also discusses proposed
changes in how manufacturers calculate and report ASP data to us.
1. ASP Issues
[If you choose to comment on issues in this section, please include the
caption ``ASP Issues'' at the beginning of your comments.]
Section 303(c) of the MMA amended Title XVIII of the Act by adding
new section 1847A. This new section establishes the use of the ASP
methodology for payment for most drugs and biologicals not paid on a
cost or prospective payment basis furnished on or after January 1,
2005. The ASP reporting requirements are set forth in section 1927(b)
of the Act. Manufacturers must submit ASP data to us quarterly. The
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 manufacturers' submitted
ASP data is specified in the regulations in part 414, subpart K. Based
on the data we receive, we update the Part B drug payment amounts
quarterly.
In this section of the preamble, we discuss issues and propose
changes related to the methodology manufacturers use to apply the
estimate of lagged price concessions in the ASP calculation. We also
discuss the submission of ASP data, including WAC, and our intent to
propose, in a separate notice, the collection of additional information
from manufacturers, using a revised reporting format, to ensure more
accurate calculation of the Medicare payment amounts.
Also, included in this section is a discussion of the weighting
methodology we follow to establish the Medicare payment amounts using
the ASP data.
a. Estimation Methodology for Lagged Price Concessions
Section 1847A(c)(5)(A) of the Act states that the ASP is to be
calculated by the manufacturer on a quarterly basis. As a part of that
calculation, manufacturers are to take into account price concessions
such as--
Volume discounts.
Prompt pay discounts.
Cash discounts.
Free goods that are contingent on any purchase
requirement.
Chargebacks.
Rebates (other than rebates under the Medicaid drug rebate
programs).
If the data on these price concessions are lagged, then the
manufacturer is required to estimate costs attributable to these price
concessions. Specifically, the manufacturer sums the price concessions
for the most recent 12-month period available associated with all sales
subject to the ASP reporting requirements. The manufacturer then
calculates a percentage using this summed amount as the numerator and
the corresponding total sales data as the denominator. This results in
a 12-month rolling average price concession percentage that is applied
to the total in dollars for the sales subject to the ASP reporting
requirement for the quarter being submitted to determine the price
concession estimate for the quarter. The methodology is specified in
Sec. 414.804(a)(3) and was published in the Manufacturer Submission of
Manufacturer's ASP Data for Medicare Part B Drugs and Biologicals final
rule published on September 16, 2004 (69 FR 55763).
Our goal is to ensure that the ASP data submitted by manufacturers
reflects an appropriate estimate of lagged price concessions. Since
publication of the September 16, 2004 final rule, we have identified a
refinement of the ASP calculation and lagged price concession
estimation methodology related to chargebacks that we believe will
improve the accuracy of the estimate. As a result, we are proposing to
clarify the ASP calculation in this proposed rule.
b. Price Concessions: Wholesaler Chargebacks
Wholesaler chargebacks are a type of price concession, generally
paid on a lagged basis, that apply to sales to customers (for example,
physicians) via a wholesaler (or distributor). Wholesaler chargeback
arrangements may vary in scope and complexity. However, simply put, the
wholesaler administers contract prices negotiated between the
manufacturer and end purchasers (for example, physician or other health
care providers), or otherwise implements pricing terms established by
the manufacturer (for example, pricing that varies by type of purchaser
or class of trade). The wholesaler charges the customer a certain price
and charges back the manufacturer an agreed upon amount for the
purposes of making up the difference between the wholesaler's price
(for example, WAC) and the customer's price.
Under the current estimation methodology for lagged price
concessions, total lagged price concessions, including lagged
wholesaler chargebacks, for the 12-month period are divided by total
sales for that same period to determine a ratio that is applied to the
total sales for the reporting period. The ratio of lagged price
concessions to sales is calculated over all sales, both indirect sales
(sales to wholesalers and distributors and other similar entities that
sells to others in the distribution chain) and direct sales (sales
directly from manufacturer to providers, such as hospitals or HMOs). To
the extent that the relationship between total dollars for indirect
sales and total dollars for all sales is different for the reporting
quarter and the 12-month period used, the current ratio methodology for
estimating lagged price concessions may overstate or understate
wholesaler chargebacks expected for the reporting period. A more
accurate estimation of lagged price concessions would minimize the
effect of quarter to quarter variations in the relationship between
indirect sales and all sales.
As a result, we propose to revise Sec. 414.804 to require
manufacturers to calculate the ASP for direct sales independently from
the ASP for all other sales subject to the ASP reporting requirement
(indirect sales). Then, the manufacturer would calculate a weighted
average of the direct sales ASP and the indirect sales ASP to submit to
us. For example, for a National Drug Code (NDC), the manufacturer has
100 direct sales and 200 indirect sales. Taking into account applicable
price concessions for direct sales and those for indirect sales,
including use of the ratio methodology for estimating lagged price
concessions, the direct sales ASP is $25, and the indirect sales ASP is
$27.

[[Page 45844]]

The weighted average of the ASPs would be as shown in this example.
[GRAPHIC] [TIFF OMITTED] TP08AU05.042

We believe the weighted average of direct sales ASP and indirect
sales ASP improves the overall accuracy of the ASP calculation,
particularly for NDCs with significant fluctuations in the percentage
of sales that are direct sales.
We are proposing conforming changes to Sec. 414.804 for the
methodology for calculating the lagged price concessions percentage. We
are also proposing to revise the regulation text to clarify that the
estimation ratio methodology relates to lagged price concessions. We
also are proposing to define direct sales and indirect sales in Sec.
414.802, and seek to develop definitions for these terms so that all
sales subject to the ASP reporting requirement are included under these
two definitions.
We seek comments about the advisability of requiring manufacturers
to calculate the ASP for direct sales, including price concessions,
independently from the ASP for indirect sales and then calculating a
weighted average of these ASPs to submit to CMS. We also seek comments
about the potential affects of this approach on the ASP as well as our
proposed definitions of direct sales and indirect sales (that is, that
direct sales are from manufacturer to provider or supplier, and
indirect sales are the remaining sales subject to the ASP reporting
requirement).
c. Determining the Payment Amount Based on ASP Data
We have received inquiries related to the formula we use to
calculate the payment amount for each billing code. We posted a
Frequently Asked Question on this subject on our Web site (http://www.questions.cms.hhs.gov
) earlier this year. We are including this

section in this preamble to ensure greater public access to this
information. Our approach to calculating the payment amounts is as
follows:
For each billing code, we calculate a weighted ASP using
the ASP data submitted by manufacturers.
Manufacturers submit ASP data at the 11-digit NDC level.
Manufacturers submit the number of units of the 11-digit
NDC sold and the ASP for those units.
We convert the manufacturers' ASP for each NDC into the
ASP per billing unit by dividing the manufacturer's ASP for that NDC by
the number of billing units in that NDC. For example, a manufacturer
sells a box of 4 vials of a drug. Each vial contains 20 milligrams
(mg). The billing code is per 10 mg. The conversion formula is:
Manufacturer's ASP/[(4 vials x 20 mg)/10 mg = 8 billable units per
NDC].
Then, the ASP per billing unit and the number of units
(11-digit NDCs) sold for each NDC assigned to the billing code are used
to calculate a weighted ASP for the billing code. We sum the ASP per
billing unit times the number of 11-digit NDCs sold for each NDC
assigned to the billing code, and then divide by the total number of
NDCs sold. The ASP per billing unit for each NDC is weighted equally
regardless of package size.
d. Reporting WAC
In response to manufacturer's questions about reporting WAC, we
posted a Frequently Asked Question on this subject on our Web site
(http://www.questions.cms.hhs.gov) last year. In the posting on the Web

site, we state that manufacturers must report the WAC for a single
source drug or biological if it is less than the ASP for a quarter and
in cases where the ASP during the first quarter of sales is
unavailable. Upon further review, we have determined that the WAC must
be reported each quarter if required for payment to be made under
section 1847A of the Act, in addition to the ASP, if available.
Section 1927(b)(3)(A)(iii) of the Act specifies the ASP data
manufacturers must report. Section 1927(b)(3)(A)(iii)(II) of the Act
specifies that the manufacturer must report the WAC, if it is required
in order for payment to be made under section 1847A of the Act. Under
section 1847A of the Act, the payment is based on WAC (as opposed to
ASP) in the following cases:
For a single source drug or biological, when the WAC-based
calculated payment is less than the ASP-based calculated payment for
all NDCs assigned to such drug or biological product. (See section
1847A(b)(4) of the Act.)
During an initial period in which data on the prices for
sales for the drug or biological is not sufficiently available from the
manufacturer to compute an ASP. (See section 1847A(c)(4) of the Act.)
In these instances, we must make the determination of whether the
payment amount is based on ASP or WAC. Therefore, WAC is required for
payment in all of these instances.
On April 6, 2004, we published the ASP reporting regulations in the
Manufacturer Submission of Manufacturer's ASP Data for Medicare Part B
Drugs and Biologicals interim final rule with comment (66 FR 17935-
17941). In that interim final rule, we specified that manufacturers
must report the ASP data to us using the template provided in Addendum
A of that interim final rule. That template included the manufacturer's
name, NDC, manufacturer's ASP, and number of units. The WAC was not
included in the template. Therefore, in order to report the WAC,
manufacturers have used several approaches. Some manufacturers have
appended the WAC to the template; others have noted it in their written
cover letters to their submissions. Still others have sent the WAC to
us using electronic mail. Because a place for the WAC was not included
in the template, it is possible that manufacturers may not have
submitted the WAC even though it was required. On a few occasions, we
have contacted the manufacturer to obtain the WAC when it was needed to
determine the payment amount. Therefore, because of the requirement to
submit the WAC and the confusion manufacturers have experienced in
submitting the WAC data we will propose, in a separate information
collection notice, to revise the reporting template to include a place
to report WAC. See the discussion in section e. below for further
details about potential changes to the reporting format.
To clarify the instances when manufacturers are required to report
the WAC, in this proposed rule we are clarifying that manufacturers are
required to report quarterly both the ASP and the WAC for NDCs assigned
to a single source drug or biological billing code. Manufacturers are
also required to report the WAC for use in determining the payment
during the initial period under section 1847A(c)(4) of the Act. That
is, the WAC is reported for the reporting period prior to reporting the
ASP based on a full quarter of sales.
Because the WAC could change during a reporting period, we are
proposing that in reporting the WAC, manufacturers would be required to
report the WAC in effect on the last day of the reporting period.
e. Revised Format for Submitting ASP Data
As specified in the April 6, 2004 interim final rule, manufacturers
are required to report the ASP data to us in Microsoft Excel using the
specified template. As discussed above, the current template does not
provide adequate instructions for manufacturers to report both the ASP
and the WAC. Therefore, in a separate information collection notice
that will be published at or about the same time as this

[[Page 45845]]

proposed rule, we will propose to revise the ASP reporting format to
accommodate submission of both the ASP and the WAC. We will also
propose to collect the following additional information:
Drug name.
Package size (strength of product, volume per item, and
number of items per NDC).
Expiration date for last lot manufactured.
Date the NDC was first marketed (for products first
marketed on or after October 1, 2005).
Date of first sale for products first sold on or after
October 1, 2005.
We are mentioning the separate information collection notice in
this proposed rule in order to broaden public awareness of the separate
notice. The separate notice will be posted at http://www.cms.hhs.gov/regulations/pra/.
The current reporting format is an approved

information collection. The OMB control number is 0938-0921.
f. 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 ASP 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)(A) of the Act states that ``The Secretary may
disregard the ASP 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)).'' The applicable threshold is specified as 5 percent
for CY 2005. For CY 2006 and subsequent years, section 1847A(d)(3)(B)of
the Act establishes that the applicable threshold is ``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.''
For CY 2006, we propose to specify an applicable threshold
percentage of 5 percent for both the widely available market price
(WAMP) and average manufacturer price (AMP). The OIG is conducting its
first review. However, we did not receive the OIG's final report in
time for consideration before developing this proposed rule. Thus, we
believe that continuing the CY 2005 threshold percentage applicable to
both the WAMP and AMP is most appropriate.
2. Payment for Drugs Furnished During CY 2006 in Connection With the
Furnishing of Renal Dialysis Services if Separately Billed by Renal
Dialysis Facilities
[If you choose to comment on issues in this section, please include the
caption ``Payment for ESRD Drugs'' at the beginning of your comments.]
Section 1881(b)(13)(A)(iii) of the Act indicates that payment for a
drug furnished during CY 2006 and subsequent years 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 OIG report to the Secretary as required by
section 623(c) of the MMA or, the amount determined under section 1847A
of the Act for the drug, as the Secretary may specify. In the report
entitled, ``Medicare Reimbursement for Existing End Stage Renal Disease
Drugs,'' the OIG obtained the drug acquisition costs for the top 10
ESRD drugs for the 4 largest ESRD chains as well as a sampling of the
remaining independent facilities. Based on the information obtained
from this report, for CY 2005, payment for the top 10 ESRD drugs billed
by freestanding facilities and payment for EPO billed by hospital-based
facilities was based on acquisition costs as determined by the OIG. Due
to the lag in the data obtained by the OIG, we updated the acquisition
costs for the top 10 ESRD drugs to 2005 by the PPI. The separately
billable ESRD drugs not contained in the OIG report were paid at the
ASP +6 percent for freestanding facilities. The payment allowances for
these remaining drugs were updated on a quarterly basis during 2005.
Section 1881(b)(13)(A)(iii) of the Act gives the Secretary the
authority to establish the payment amounts for separately billable ESRD
drugs beginning in 2006 based on acquisition costs or the amount
determined under section 1847A of the Act. For reasons discussed below,
we do not believe that it is appropriate to continue to use 2002
acquisition costs updated by the PPI for another year as the basis for
payment. The acquisition costs are based on 2002 data which, despite
updates by the PPI, do not necessarily reflect current market
conditions. As discussed below, the chances increase that Medicare
payments will either overpay or underpay for drugs, thus, resulting in
payments that are inconsistent with the goal of making accurate
payments for drugs. We also considered whether actual acquisition cost
data could be periodically updated. However, we do not believe that it
would be feasible to base Medicare payments over the long term on
continually acquiring data on actual acquisition costs from ESRD
facilities. This approach would provide incentives for manufacturers
and facilities to increase acquisition costs without constraint. It
also would not necessarily provide data regarding current market rates.
Therefore, we believe it is appropriate for the payment methodology for
all ESRD drugs when separately billed by freestanding ESRD facilities
during CY 2006 to be paid the amount determined under section 1847A of
the Act. This payment amount is the ASP +6 percent rate.
In reaching the conclusion about establishing payment using the
amount determined under section 1847A of the Act rather than actual
acquisition costs, we analyzed the ASP +6 percent payment rates for all
separately billable ESRD drugs, including the top 10, for both the
first and second quarters of CY 2005. (We note that the ASP payment
rates are updated quarterly. The new rates are made available each
quarter at the following Web site: http://www.cms.hhs.gov/providers/drugs/asp.asp.
). Additionally, we analyzed the CY 2005 payment rates,

based on OIG data, updated by the PPI to reflect inflation as well as
the potential CY 2006 payment rates, based on the OIG data, also
updated by the PPI to reflect inflation for the top 10 separately
billable ESRD drugs. As indicated in the ``Top 10 Separately Billable
ESRD Drugs'' chart, the payment rates for the top 10 separately
billable ESRD drugs based on the acquisition costs (as determined by
the OIG), updated by the PPI would increase by 7 percent for CY 2006.
In contrast, the percentage change in the ASP +6 percent payment rates
for the top 10 separately billable ESRD drugs based on the first and
second quarters of CY 2005 varied on a drug-by-drug basis.

[[Page 45846]]

Top 10 Separately Billable ESRD Drugs
----------------------------------------------------------------------------------------------------------------
Estimated 2006
payment rate Percent change
based on OIG Estimated 2006 in ASP +6
2005 Payment data (2003 payment rate rates between
Drug name rate data inflated based on ASP+6 1st quarter
16.2% to 2006 (2nd quarter and 2nd
by the 2005 rates) quarter 2005
estimated PPI) (percent)
----------------------------------------------------------------------------------------------------------------
Epoetin alpha................................... $9.760 $10.440 $9.250 -1%
Paricalcitol.................................... $4.000 $4.270 $3.971 -1
Sodium Ferric Gluconate......................... $4.950 $5.290 $4.726 -2
Iron Sucrose.................................... $0.370 $0.390 $0.365 1
Levocarnitine................................... $13.630 $14.560 $11.122 -24
Doxercalciferol................................. $2.600 $2.780 $2.784 -0.5
Calcitriol...................................... $0.960 $1.030 $0.859 21
Iron Dextran.................................... $10.940 $11.700 $11.218 1
Vancomycin...................................... $2.980 $3.190 $3.188 32
Alteplase, Recombinant.......................... $31.740 $33.920 $30.089 0
----------------------------------------------------------------------------------------------------------------

However, the percentage increases or decreases in the ASP +6
percent payment rates are relatively minimal. For example, the payment
allowance for Alteplase, recombinant, J2997, decreased from first
quarter 2005 to second quarter 2005 by less than 1 percent. Based on an
analysis of the 2002 acquisition costs for the top 10 separately
billable ESRD drugs, when updated by the PPI for CY 2006, it is our
contention that relying on 2002 acquisition cost data updated for a
number of years as would be necessary to establish a payment amount for
2006 is not the most appropriate option for determining Medicare
payment rates when other drug-specific pricing is available. Further,
we contend that relying on the ASP +6 percent as the payment rate for
all separately billable ESRD drugs when billed by freestanding ESRD
facilities for CY 2006 is a more reliable indicator of the market
transaction prices for these drugs. The ASP is reflective of
manufacturer sales for specific drug products and is more indicative of
market and sales trends for those specific products than the 2002 OIG
acquisition cost data.
We also note MedPAC's recommendation in its June 2005 report that
the ASP be the basis of payment for all separately billable ESRD drugs
provided by both freestanding and hospital-based facilities in CY 2006
(MedPAC, ``Report to the Congress: Issues in a Modernized Medicare
Program,'' June 2005). In making this recommendation, MedPAC states
that the ASP data are more current (updated quarterly), and, thus, more
likely to reflect actual transaction prices, compared with acquisition
cost data which are not regularly collected by the OIG or CMS.
Furthermore, the report indicated that utilizing the same payment
policy for both freestanding and hospital-based facilities would ensure
uniformity across the various settings irrespective of the site of
care. In addition, MedPAC recommends in its report that we obtain, ``*
* * data to estimate hospitals' costs and Medicare's payment per unit
for these drugs. No published source identifies the unit payment for
these drugs because Medicare pays hospitals their reasonable costs.''
MedPAC further states: ``We attempted to calculate the unit payment
from 2003 claims data, but the accuracy of the data fields we needed to
make this calculation was unclear, particularly the number of units
furnished and Medicare's payment to the hospital.'' MedPAC also
recommends that CMS and/or OIG collect acquisition cost data
periodically in the future to gauge the appropriate percentage of ASP
for the payment amount.
While we acknowledge MedPAC's recommendations, we are proposing to
make payment using the ASP +6 percent methodology for all separately
billed ESRD drugs furnished in freestanding facilities and for EPO
furnished in hospital-based facilities. Paying for EPO furnished in
hospital-based facilities using the ASP +6 percent methodology is
consistent with past practices where we have paid for EPO in hospital-
based facilities consistent with freestanding facilities. That is, in
2005, we paid for EPO in hospital-based facilities based on acquisition
costs consistent with freestanding facilities. While we are not
proposing to pay for drugs other than EPO furnished in hospital-based
facilities under the ASP +6 percent methodology at this time, we are
interested in moving to this approach. We believe that it is more
appropriate to pay for separately billed drugs furnished in hospital-
based facilities under the ASP +6 percent methodology rather than on a
reasonable cost basis, as we believe that there should be consistency
across sites in payment for the same item or service. However, we have
not made this proposal due to the lack of data regarding drug costs and
expenditures associated with hospital-based ESRD payments. We have
discussed a potential approach to making estimates of these costs and
units. We seek comments about the estimation method discussed in
section II.G. of this proposed rule or other methods or data that could
be used.
Therefore, for CY 2006, we propose that payment for a drug
furnished in connection with renal dialysis services and separately
billed by freestanding renal dialysis facilities and EPO billed by
hospital-based facilities be based on section 1847A of the Act. We
propose to update the payment allowances quarterly based on the ASP
reported to us by drug manufacturers. We seek comment on our proposed
decision to revise the payment methodology for separately billable ESRD
drugs. While we have not proposed to pay hospital-based facilities
under the ASP +6 percent methodology for 2006, we seek comments about
the potential method we have discussed to accomplish this policy. We
also seek comment on how this proposed decision could affect
beneficiaries or providers access to these drugs.
3. Clotting Factor Furnishing Fee
[If you choose to comment on issues in this section, please include the
caption ``Clotting Factor'' at the beginning of your comments.]
Section 303(e)(1) of the MMA added section 1842(o)(5) of the Act
which requires the Secretary, beginning in CY 2005 to pay a furnishing
fee, in an amount the Secretary determines to be appropriate, to
hemophilia treatment

[[Page 45847]]

centers and homecare companies for the items and services associated
with the furnishing of blood clotting factor. In the Revisions to
Payment Policies Under the Physician Fee Schedule for Calendar Year
2005 final rule, published November 15, 2004 (69 FR 66236) we
established a furnishing fee of $0.14 per unit of clotting factor for
CY 2005. Section 1842(o)(5) of the Act specifies that the furnishing
fee for clotting factor for years after CY 2005 will be equal to the
fee for the previous year increased by the percentage increase in the
consumer price index (CPI) for medical care for the 12-month period
ending with June of the previous year. The CPI data for the 12-month
period ending in June 2005 is not yet available. As a point of
reference, we note that the percent change in the CPI for medical care
for the 12-month period ending June 2004 was 5.1 percent. In the final
rule, we will include the actual figure for the percent change in the
CPI medical care for the 12-month period ending June 2005, and the
updated furnishing fee for CY 2006 calculated based on that figure.
4. Payment for Inhalation Drugs and Dispensing Fee
[If you choose to comment on issues in this section, please include the
caption ``Inhalation Drugs and Dispensing Fee'' at the beginning of
your comments.]
Medicare Part B pays for inhalation drugs administered via a
nebulizer, a covered item of DME. Medicare Part B pays for DME and
associated supplies, including inhalations drugs that are necessary for
the operation of the nebulizer. Metered-dose inhalers (MDIs) are
another mode of delivery for inhalation drugs. MDIs are considered
disposable medical equipment (for which there is no current Medicare
Part B benefit category), and consequently are not currently covered
under Part B. Beginning in CY 2006, coverage for MDIs will generally be
available through the Medicare Part D benefit. This represents an
important expansion in the options available to beneficiaries for
inhalation drug coverage under Medicare. With Medicare coverage of both
delivery methods available, we anticipate that physicians will choose
the option that best suits a patient's particular needs consistent with
the applicable standards of medical practice. We expect that both modes
of inhalation drug delivery will play an important role in the Medicare
program in the years to come.
Prior to CY 2004, most Medicare Part B covered drugs, including
inhalation drugs, were paid at 95 percent of the AWP. Numerous studies
by the OIG and General Accounting Office (GAO) indicated that 95
percent of AWP substantially exceeded suppliers' acquisition costs for
Medicare Part B drugs, particularly for the high volume nebulizer
drugs, albuterol and ipratropium bromide.\1\ For example, supplier's
acquisition costs were estimated to be 34 percent of AWP for
ipratropium bromide and 17 percent of AWP for albuterol based on
averaging results from a GAO and an OIG study.\2\ The MMA changed the
Medicare payment methodology for many Part B covered drugs. As an
interim step, in CY 2004, Medicare paid a reduced percentage of AWP, 80
percent of AWP in the case of albuterol and ipratropium bromide.
Beginning with CY 2005, Medicare paid for nebulizer drugs at 106
percent of the ASP. The move to the ASP system represented a
substantial reduction in reimbursement for the high volume nebulizer
drugs.
---------------------------------------------------------------------------

\1\ GAO, ``Medicare Payment for Covered Outpatient Drugs Exceed
Providers' Costs,'' September 2001. OIG, ``Excessive Medicare
Reimbursement for Albuterol,'' March 2002. OIG, ``Excessive Medicare
Reimbursement for Ipratropium Bromide,'' March 2002.
\2\ For more details see the Interim Final Rule regarding
Changes to Medicare Payment for Drugs and Physician Fee Schedule
Payments for Calendar Year 2004 published in the Federal Register on
January 7, 2004.
---------------------------------------------------------------------------

In addition to paying for the cost of the drug itself, Medicare has
paid a dispensing fee for inhalation drugs. Prior to CY 2005, Medicare
paid a monthly $5 dispensing fee for each covered nebulizer drug or
combination of drugs used. In the Revisions to Payment Policies Under
the Physician Fee Schedule for Calendar Year 2005 proposed rule,
published August 5, 2004, we proposed to continue to pay a dispensing
fee for these drugs. In that proposed rule, we sought comment on an
appropriate dispensing fee level to cover the shipping, handling,
compounding, and other pharmacy activities required to get these
medications to beneficiaries.
In response to last year's proposed rule, we received a number of
comments that varied substantially in terms of the dispensing fee
amount that commenters thought was adequate. We received comments from
a retail pharmacy that indicated that a dispensing fee of five to six
times the prior $5 fee was necessary to cover costs. Another retail
pharmacy indicated that a dispensing fee of $25 would be an adequate
amount and would be profitable.
We also received several comments that asserted that a
substantially higher fee was needed and that the dispensing fee should
cover a variety of services. A number of commenters referenced an
August 2004 report prepared for the American Association of Homecare
(AAH) by a consultant that surveyed 104 home care agencies, which
indicated that in order to maintain the CY 2004 levels of service to
Medicare beneficiaries and provide an operating margin of 7 percent,
Medicare would have to pay a dispensing fee of $68.10 per service
encounter (service encounters they estimate occur on average every 42
days). The survey included costs for a wide range of activities
including activities associated with getting the drug to the
beneficiary, as well as other additional services. More specifically,
the AAH data included the following cost categories:
Clinical intake.
Establishing and revising the plan of care.
Care coordination.
Patient education.
Caregiver training.
Compliance monitoring/refill calls.
In-home visits.
Delivery of services.
Billing/collections.
Other costs (not specified by AAH).
As an example, the AAH data indicated that inhalation drug
suppliers spent on average about 29 minutes per new patient on patient
education and caregiver training and continued to spend on average
about 17 minutes per month for each established patient on patient
education and caregiver training. The data also indicated that
suppliers spent on average about 23 minutes per patient each month on
in-home visits, with there being substantial variation in the provision
of this service. A number of commenters asserted that these and other
services included in the AAH data were important to the provision of
inhalation drugs, and should be paid for by Medicare.
Between publication of the August 5, 2004 proposed rule and the
November 15, 2004 final rule, the GAO released a report based on a
survey of 12 inhalation therapy companies, representing 42 percent of
the market, which indicated wide variation across companies in the
patient monthly cost of dispensing inhalation drugs from a low of $7 to
a high of $204.\3\ The GAO report indicated that the wide variation in
supplier costs is due, in part, to variation in the services suppliers
offer and that some of the costs incurred by suppliers may not be
necessary to dispense inhalation drugs, for example,

[[Page 45848]]

marketing, overnight shipping, and 24-hour hotlines.
---------------------------------------------------------------------------

\3\ GAO, ``Appropirate Dispensing Fee Needed for Suppliers of
Inhalation Therapy Drugs,'' GAO-05-72, October 2004.
---------------------------------------------------------------------------

In light of the substantial changes occurring in inhalation drug
reimbursement in 2005, we viewed 2005 as a transitional year. With the
wide variation in the reported costs and services provided by
inhalation drug suppliers suggested by the comments and the GAO study,
we stated in last year's final rule that we would establish an interim
dispensing fee for inhalation drugs applicable for CY 2005 and
reconsider the issue for CY 2006. The 2005 dispensing fee for a 30-day
supply of inhalation drugs was based on the industry recommended $68
fee from AAH study, excluding certain costs that Medicare generally
does not reimburse regardless of the scope of the Medicare benefit
(that is, sales and marketing, bad debt, and an explicit profit
margin). The resulting fee established for a 30-day supply of
inhalation drugs was $57 for CY 2005. This CY 2005 fee substantially
exceeded some providers' costs as reflected in a few comments on last
year's proposed rule and the GAO study. For example, as noted
previously, we received comments from two retail pharmacy companies
indicating that a fee of $25 or a fee of five to six times the prior $5
fee was adequate to cover costs. Because the AAH study did not include
cost data for a 90-day supply, we applied the methodology used in the
GAO report to convert the 30-day fee to a 90-day fee. The 2005 fee
established for a 90-day supply was $80. In using the AAH data to
establish an interim fee for dispensing for CY 2005, we indicated in
last year's final rule that we were concerned that some of the services
included in the AAH study may be outside the scope of a dispensing fee
and that we would consider this issue further in order to establish an
appropriate dispensing fee for CY 2006.
Authority for a dispensing fee for inhalation drugs is based on
section 1842(o)(2) of the Act. This section of the Act stipulates that
if payment is made to a licensed pharmacy for a drug or biological
under Medicare Part B, the Secretary may pay a dispensing fee (less the
applicable deductible and coinsurance) to the pharmacy. The statute
does not define ``dispensing fee.'' As noted above, the AAH data on
which the 2005 dispensing fee is based includes a wide range of cost
categories. The cost categories include basic pharmacy services such as
delivery of drugs, as well as other services such as in-home visits. We
are soliciting comments on what services appropriately fall within the
scope of a dispensing fee, the cost of providing those services, and
whether any of the services being provided by inhalation drug suppliers
may be covered through another part of the Medicare program, such as
the physician fee schedule or the DME benefit. We intend to establish a
dispensing fee amount for 2006 that is adequate to cover the costs of
those services that appropriately fall within the scope of a dispensing
fee, and we think that it is likely that this fee amount will be lower
than the 2005 level. As discussed previously, we believe that 2005 was
a transition year. Payment for inhalation drugs in 2005 was reduced
from a percentage of AWP to 106 percent of ASP and the 2005 dispensing
fee was set at a much higher level than previously paid based on the
limited information available and taking into account the transition.
Additional changes will occur in 2006 because the implementation of the
Medicare prescription drug benefit will expand coverage options for
inhalation drugs to include metered dose inhalers under Medicare Part
D. As noted above, we expect that physicians will choose the treatment
option that best suits a particular beneficiary's needs and that both
nebulizers and metered-dose inhalers will play an important role in the
Medicare program. We do not know what the effect will be of this
upcoming expansion of inhalation drug coverage options, but we believe
it is important that this second transitional year be as smooth as
possible. We are seeking comments on an appropriate dispensing fee
level for 2006. We also seek data and information on the various
services inhalation drug suppliers are currently providing to Medicare
beneficiaries and the associated costs. Furthermore, we are also
soliciting comments on how inhalation drug suppliers have utilized the
newly available 90-day scripts in order to reduce unit shipping costs
and any reasons as to why 90-day supplies may not have been utilized.
We also seek information on how revised guidelines regarding the time
frame for delivery of refills has affected the need for overnight
delivery services. We are interested in comments that detail the extent
to which suppliers have shifted their shipping to ground services.
CMS takes quality of care seriously and we have been implementing a
number of quality initiatives such as the chronic care improvement
program. We expect that Medicare beneficiaries receive high quality
care, and we seek data and information on any efforts by inhalation
drug suppliers to measure patient outcomes. Furthermore, we seek
comments and additional information about what are typical dispensing
costs for an efficient, high-quality supplier. Finally, we seek comment
on the potential impact on beneficiaries and providers of possible
changes to the inhalation drug dispensing fee in 2006, as well as the
impact of the new drug benefit on inhalation drug access.
5. Supplying Fee
[If you choose to comment on issues in this section, please include
the caption ``Supplying Fee'' at the beginning of your comments.]
Section 303(e)(2) of the MMA added section 1842(o)(6) of the Act
that requires the Secretary to pay a supplying fee (less applicable
deductible and coinsurance) to pharmacies for certain Medicare Part B
drugs and biologicals, as determined appropriate by the Secretary. The
types of Medicare Part B drugs and biologicals eligible for a supplying
fee are immunosuppressive drugs described in section 1861(s)(2)(J) of
the Act, oral anticancer chemotherapeutic drugs described in section
1861(s)(2)(Q) of the Act, and oral anti-emetic drugs used as part of an
anticancer chemotherapeutic regimen described in section 1861(s)(2)(T)
of the Act.
Beginning with CY 2005, we established a supplying fee of $24 per
prescription for these categories of drugs, with a higher fee of $50
for the initial oral immunosuppressive prescription supplied in the
first month after a transplant. When multiple drugs are supplied to a
beneficiary, a separate supplying fee is paid for each prescription,
except when different strengths of the same drug are supplied on a
single day. In the November 15, 2004 final rule, we indicated that we
were establishing a supplying fee that was higher than that of other
payers due to the lack of on-line claims adjudication for Medicare Part
B oral drugs. Other than the cost of billing Medicare Part B, we
indicated that we did not believe there were any other significant cost
differences between Medicare and other payers that justified a higher
Medicare supplying fee for these drugs. We noted in last year's final
rule that many other payers with online adjudication have dispensing
fees in the range of $5 to $10 per prescription. We also indicated that
we had received comments that the average cost to a pharmacy to
dispense a non-Medicaid third party or cash prescription for those
drugs ranges anywhere from $7.50 to $8.00.
When multiple drugs are supplied to a beneficiary on the same day
or in the same month, current policy is to pay a full supplying fee for
each additional drug. As mentioned previously, we established a
supplying fee higher than

[[Page 45849]]

that of other payers to compensate for the added costs associated with
our lack of online claims adjudication. However, in situations where
multiple drugs are supplied to a beneficiary during the same month,
many of which are likely to be supplied on the same day, we are
concerned that we are overpaying for the costs associated with our lack
of online claims adjudication. We believe that there are likely to be
substantial economies of scale and that the burden associated with our
lack of online claims adjudication would be relatively similar whether
one prescription or multiple prescriptions were supplied during the
same month.
Consequently, in Sec. 414.1001 (Basis of payment), we are
proposing changes to the supplying fee for multiple prescriptions
supplied during the same month. We would continue paying $24 for the
first prescription supplied during a month (or $50 for the first oral
immunosuppressive prescription supplied in the first month after a
transplant). We believe that this $24 supplying fee for the first
prescription would adequately compensate a supplier for the billing
costs associated with the lack of on-line claims adjudication, and that
the cost of supplying additional prescriptions in the same month should
be comparable to that of other payers. Therefore, in that same section,
we are proposing to pay a supplier an $8 supplying fee per prescription
for any prescription, after the first one, that that supplier provided
to a beneficiary during a month. If a beneficiary obtained
prescriptions at two separate pharmacies during a one-month period,
each pharmacy would be paid a $24 fee for the first drug it supplied
and an $8 fee per prescription for any subsequent prescriptions during
the month.
We are also proposing to expand the circumstances under which we
pay supplying fees for multiple prescriptions filled on the same day.
Currently, we pay a supplying fee for each prescription supplied on the
same day as long as the prescriptions are for different drugs. We are
now proposing to pay a supplying fee for each prescription, even if the
prescriptions are for different strengths of the same drug. This change
is intended to recognize the costs involved in filling separate
prescriptions for different strengths of a drug. For example, if two
prescriptions were supplied on a single day and they were for different
strengths of the same drug, we are proposing to pay a supplying fee of
$24 for the first prescription and a supplying fee of $8 for the second
prescription.
Our goal is to ensure that each beneficiary who needs covered oral
drugs has access to those medications while maintaining our fiduciary
responsibility to pay appropriately for Medicare covered services. We
seek comments about the appropriateness of our proposed supplying fee
for multiple prescriptions supplied during a single month. We also seek
data and information about the incremental costs of supplying
additional prescriptions to a Medicare beneficiary during a single
month, as well as data and information about how pharmacy costs and
reimbursement for supplying oral drugs under Medicare compares to that
of other payers.

I. Private Contracts and Opt-Out Provision

[If you choose to comment on issues in this section, please include the
caption ``PRIVATE CONTRACTS AND OP-OUT'' at the beginning of your
comments.]
Section 4507 of the BBA of 1997 amended section 1802 of the Act to
permit certain physicians and practitioners to opt-out of Medicare if
certain conditions were met, and to provide through private contracts
services that would otherwise be covered by Medicare. Under these
private contracts, the mandatory claims submission and limiting charge
rules of section 1848(g) of the Act would not apply. The amendments to
section 1802 of the Act, which were effective on January 1, 1998, made
the provisions of the Medicare statute that would ordinarily preclude
physicians and practitioners from contracting privately with Medicare
beneficiaries to pay without regard to Medicare limits inapplicable if
the conditions necessary for an effective ``opt-out'' are met.
When a physician or practitioner fails to maintain the conditions
necessary for opt-out and does not take good faith efforts to correct
his or her failure to maintain opt-out, current regulations at Sec.
405.435(b) specify the consequences to that physician or practitioner
for the remainder of that physician's or practitioner's 2-year opt-out
period. However, Sec. 405.435(b) describes a situation where the
Medicare carrier notifies the physician or practitioner that he or she
is violating the regulations and the statute. The current regulations
do not address the consequences to physicians and practitioners in
situations when a condition resulting in failure to maintain opt-out
occurs during the 2-year opt-out period, but a Medicare carrier does
not discover or give notice of a physician's or practitioner's failure
to maintain opt-out during the 2-year opt-out period. Therefore, we are
proposing to amend Sec. 405.435 in order to clarify that the
consequences specified in Sec. 405.435(b) for the failure on the part
of a physician or practitioner to maintain opt-out will apply
regardless of whether or when a carrier notifies a physician or
practitioner of the failure to maintain opt-out. We are also proposing
to add a new paragraph (d) to clarify that in situations where a
violation of Sec. 405.435(a) is not discovered by the carrier during
the 2-year opt-out period when the violation actually occurred, then
the requirements of Sec. 405.435(b)(1) through (b)(8) would be
applicable from the date that the first violation of Sec. 405.435(a)
occurred until the end of the opt-out period during which the violation
occurred (unless the physician or practitioner takes good faith efforts
to restore opt-out conditions, for example, by refunding the amounts in
excess of the charge limits to beneficiaries with whom he or she did
not sign a private contract). These good faith efforts must be made
within 45 days of any notice by the carrier that the physician or
practitioner has failed to maintain opt-out (where the carrier
discovers the failure after the two-year opt-out period has expired),
or within 45 days after the physician or practitioner has discovered
the failure to maintain opt-out, whichever is earlier.

J. Multiple Procedure Reduction for Diagnostic Imaging

[If you choose to comment on issues in this section, please include the
caption ``MULTIPLE PROCEDURE REDUCTION'' at the beginning of your
comments.]
Medicare has a longstanding policy of reducing payment for multiple
surgical procedures performed on the same patient, by the same
physician, on the same day. In those cases, full payment is made for
the highest priced procedure and each subsequent procedure is paid at
50 percent. Effective January 1, 1995, the multiple procedure policy,
with the same reductions, was extended to nuclear medicine diagnostic
procedures (CPT codes 78306, 78320, 78802, 78803, 78806 and 78807). In
the Medicare Program Physician Fee Schedule for Calendar Year 1995
final rule, published on December 8, 1994 (59 FR 63410), we indicated
that we would consider applying the policy to other diagnostic tests in
the future.
Under the PFS, diagnostic imaging procedures are priced in the
following three ways:
The professional component (PC) represents the physician
work, that is, the interpretation.

[[Page 45850]]

The TC represents practice expense, that is, clinical
staff, supplies, and equipment.
The global service represents both PC and TC. Generally,
diagnostic imaging procedures even those performed on contiguous body
parts are paid at 100 percent for each procedure. For example, the TC
payment is approximately $978 for a magnetic resonance imaging (MRI) of
the abdomen (without and with dye), and $529 for an MRI of the pelvis
(with dye) (CPT codes 74183 and 72196, respectively), even when both
procedures are performed in a single session.
Under the resource-based PE methodology, specific PE inputs of
clinical labor, supplies and equipment are used to calculate PE RVUs
for each individual service. We do not believe these same inputs are
needed to perform subsequent procedures. When multiple images are
acquired in a single session, most of the clinical labor activities and
most supplies are not performed or furnished twice. Specifically, we
consider that the following clinical labor activities are not
duplicated for subsequent procedures:
Greeting the patient.
Positioning and escorting the patient.
Providing education and obtaining consent.
Retrieving prior exams.
Setting up the IV.
Preparing and cleaning the room.
In addition, we consider that supplies, with the exception of film,
are not duplicated for subsequent procedures. Equipment time and
indirect costs are allocated based on clinical labor time; therefore,
these inputs should be reduced accordingly.
Excluding the above practice expense inputs, along with the
corresponding portion of equipment time and indirect costs, supports a
50 percent reduction in the payment for the TC of subsequent
procedures. Applying this reduction to the two procedures indicated
above would result in a full payment of $978 for the highest priced
procedure, and a reduced payment of $264.50 (50 percent x $529) for the
second procedure. This same calculation is currently used for the
multiple procedure payment reduction for surgery. We are not proposing
to apply a multiple procedure reduction to PC services at this time
because we believe physician work is not significantly affected for
multiple procedures.
The global service payment equals the combined PC and TC
components. When the global service code is billed for these
procedures, the TC would be reduced the same as above, but the PC would
be paid in full at $117 and $90 for codes 74183 and 72196,
respectively.
In our view, duplicate payment is currently being made for the TC
of multiple diagnostic imaging services, particularly when contiguous
body parts are viewed in a single session. The Medicare Payment
Advisory Commission (MedPAC) supports this reduction in its March 2005
Report to the Congress on Medicare Payment Policy.
We have identified 11 families of imaging procedures by imaging
modality (ultrasound, CT and computed tomographic angiography (CTA),
MRI and magnetic resonance angiography (MRA) and contiguous body area
(for example, CT and CTA of Chest/Thorax/Abdomen/Pelvis). MedPAC
pointed out that Medicare's payment rates are based on each service
being provided independently and that the rates do not account for
efficiencies that may be gained when multiple studies using the same
imaging modality are performed in the same session. Those efficiencies
are more likely when contiguous body areas are the focus of the imaging
because the patient and equipment have already been prepared for the
second and subsequent procedures, potentially yielding resource savings
in areas such as clerical time, technical preparation, and supplies.
Using billing data, we identified a number of contiguous body areas for
which imaging is performed during the same session. Next, because our
proposed discounting policies are based on the expectation that
facilities will achieve savings by not having to expend more than once,
many of the resources associated with performance of a second, and any
subsequent procedures, we organized the families by imaging modality.
We propose extending the multiple procedure payment reduction to TC
only services and the TC portion of global services for the procedures
in Table 29, below. At this time, we propose applying the reduction
only to procedures involving contiguous body parts within a family of
codes, not across families. For example, the reduction would not apply
to an MRI of the brain (CPT 70552) in code family 5, when performed in
the same session as an MRI of the neck and spine (CPT 72142) in code
family 6. When multiple procedures within the same family are performed
in the same session, we propose making full payment for the TC of the
highest priced procedure and payment at 50 percent of the TC for each
additional procedure. The following is an example of the current and
proposed payments:

--------------------------------------------------------------------------------------------------------------------------------------------------------
Total current Total proposed
74183 72196 payment payment Payment calculation
--------------------------------------------------------------------------------------------------------------------------------------------------------
PC....................................... $117.00 $90.00 $207.00 $207.00 no reduction.
TC....................................... $978.00 $530.00 $1,507.00 $1,243 $978 + (.5 x $530)
Global................................... $1,095.00 $620.00 $1,714.00 $1,450 $207 + $978 + (.5 x $530)
--------------------------------------------------------------------------------------------------------------------------------------------------------

Table 29.--Diagnostic Imaging Services
------------------------------------------------------------------------

------------------------------------------------------------------------
Family 1 Ultrasound (Chest/Abdomen/Pelvis--Non-Obstetrical
------------------------------------------------------------------------
76604...................................................................
76645...................................................................
76700...................................................................
76705...................................................................
76770...................................................................
76775...................................................................
76778...................................................................
76830...................................................................
76831...................................................................
76856...................................................................
76857...................................................................
------------------------------------------------------------------------
Family 2 CT and CTA (Chest/Thorax/Abd/Pelvis)
------------------------------------------------------------------------
71250.................................. CT thorax w/o dye
71260.................................. CT thorax w/ dye
71270.................................. CT thorax w/o & w/ dye
71275.................................. CTA, chest
72191.................................. CTA, pelv w/o & w/ dye
72192.................................. CT pelvis w/o dye
72193.................................. CT pelvis w/ dye
72194.................................. CT pelvis w/o & w/ dye
74150.................................. CT abdomen w/o dye
74160.................................. CT abdomen w/ dye

[[Page 45851]]

74170.................................. CT abdomen w/o & w/ dye
74175.................................. CTA, abdom w/o & w/ dye
75635.................................. CTA abdominal arteries
0067T.................................. CT colonography; dx
----------------------------------------
Family 3 CT and CTA (Head/Brain/Orbit/Maxillofacial/Neck)
------------------------------------------------------------------------
70450.................................. CT head/brain w/o dye
70460.................................. CT head/brain w/ dye
70470.................................. CT head/brain w/o & w/ dye
70480.................................. CT orbit/ear/fossa w/o dye
70481.................................. CT orbit/ear/fossa w/ dye
70482.................................. CT orbit/ear/fossa w/o & w/ dye
70486.................................. CT maxillofacial w/o dye
70487.................................. CT maxillofacial w/ dye
70488.................................. CT maxillofacial w/o & w/ dye
70490.................................. CT soft tissue neck w/o dye
70491.................................. CT soft tissue neck w/ dye
70492.................................. CT soft tissue neck w/o & w/
dye
70496.................................. CTA, head
70498.................................. CTA, neck
----------------------------------------
Family 4 MRI and MRA (Chest/Abd/Pelvis)
------------------------------------------------------------------------
71550.................................. MRI chest w/o dye
71551.................................. MRI chest w/ dye
71552.................................. MRI chest w/o & w/ dye
71555.................................. MRI angio chest w/ or w/o dye
72195.................................. MRI pelvis w/o dye
72196.................................. MRI pelvis w/ dye
72197.................................. MRI pelvis w/o &w/ dye
72198.................................. MRI angio pelvis w/ or w/o dye
74181.................................. MRI abdomen w/o dye
74182.................................. MRI abdomen w/ dye
74183.................................. MRI abdomen w/o and w/ dye
74185.................................. MRI angio, abdom w/ or w/o dye
----------------------------------------
Family 5 MRI and MRA (Head/Brain/Neck)
------------------------------------------------------------------------
70540.................................. MRI orbit/face/neck w/o dye
70542.................................. MRI orbit/face/neck w/ dye
70543.................................. MRI orbit/face/neck w/o & w/dye
70544.................................. MRA head w/o dye
70545.................................. MRA head w/dye
70546.................................. MRA head w/o & w/dye
70547.................................. MRA neck w/o dye
70548.................................. MRA neck w/dye
70549.................................. MRA neck w/o & w/dye
70551.................................. MRI brain w/o dye
70552.................................. MRI brain w/dye
70553.................................. MRI brain w/o & w/dye
----------------------------------------
Family 6 MRI and MRA (spine)
------------------------------------------------------------------------
72141.................................. MRI neck spine w/o dye
72142.................................. MRI neck spine w/dye
72146.................................. MRI chest spine w/o dye
72147.................................. MRI chest spine w/dye
72148.................................. MRI lumbar spine w/o dye
72149.................................. MRI lumbar spine w/dye
72156.................................. MRI neck spine w/o & w/dye
72157.................................. MRI chest spine w/o & w/dye
72158.................................. MRI lumbar spine w/o & w/dye
----------------------------------------
Family 7 CT (spine)
------------------------------------------------------------------------
72125.................................. CT neck spine w/o dye
72126.................................. CT neck spine w/dye
72127.................................. CT neck spine w/o & w/dye
72128.................................. CT chest spine w/o dye
72129.................................. CT chest spine w/dye
72130.................................. CT chest spine w/o & w/dye
72131.................................. CT lumbar spine w/o dye
72132.................................. CT lumbar spine w/dye
72133.................................. CT lumbar spine w/o & w/dye
----------------------------------------
Family 8 MRI and MRA (lower extremities)
------------------------------------------------------------------------
73718.................................. MRI lower extremity w/o dye
73719.................................. MRI lower extremity w/dye
73720.................................. MRI lower ext w/ & w/o dye
73721.................................. MRI joint of lwr extre w/o dye
73722.................................. MRI joint of lwr extr w/dye
73723.................................. MRI joint of lwr extr w/o & w/
dye
73725.................................. MRA lower ext w or w/o dye
----------------------------------------
Family 9 CT and CTA (lower extremities)
------------------------------------------------------------------------
73700.................................. CT lower extremity w/o dye
73701.................................. CT lower extremity w/dye
73702.................................. CT lower extremity w/o & w/dye
73706.................................. CTA lower ext w/o & w/dye
----------------------------------------
Family 10 Mr and MRI (upper extremities and joints)
------------------------------------------------------------------------
73218.................................. MRI upper extr w/o dye
73219.................................. MRI upper extr w/dye
73220.................................. MRI upper extremity w/o & w/dye
73221.................................. MRI joint upper extr w/o dye
73222.................................. MRI joint upper extr w/dye
73223.................................. MRI joint upper extr w/o & w/
dye
----------------------------------------
Family 11 CT and CTA (upper extremities)
------------------------------------------------------------------------
73200.................................. CT upper extremity w/o dye
73201.................................. CT upper extremity w/dye
73202.................................. CT upper extremity w/o & w/dye
73206.................................. CTA upper extr w/o & w/dye
------------------------------------------------------------------------

K. Therapy Cap

[If you choose to comment on issues in this section, please include the
caption ``THERAPY CAP'' at the beginning of your comments.]
Section 1833(g)(1) of the Act applies an annual, per beneficiary
combined cap on outpatient physical therapy (PT) and speech-language
pathology services, and a similar separate cap on outpatient
occupational therapy services under Medicare Part B. This cap was added
by section 4541 of the BBA 1997, Pub. L. 105-33. However, the
application of the caps was suspended from CY 2000 through CY 2002
under section 1833(g)(4) of the Act by section 221 of the of BBRA 1999,
Pub. L. 106-113, and extended by section 421 of BIPA 2000, Pub. L. 105-
551. The caps were implemented from September 1, 2003 through December
7, 2003. Section 624 of the MMA reinstated the moratorium on the
application of these caps from December 8, 2003 through December 31,
2005. Thus, the caps will again become effective beginning January 1,
2006.
Section 1883(g)(2) of the Act provides that, for 1999 through 2001,
the caps were both $1500, and for years after 2001, the caps are equal
to the preceding year's cap increased by the percentage increase in the
MEI (except that if an increase for a year is not a multiple of $10, it
is rounded to the nearest multiple of $10). We will publish the dollar
amount for therapy caps in the final rule, when the MEI is available.
Based on the April 4, 2005 MEI estimate, the estimated value of therapy
caps for 2006 would be $1,750.

L. Chiropractic Services Demonstration

[If you choose to comment on issues in this section, please include the
caption ``CHIROPRACTIC SERVICES'' at the beginning of your comments.]
Section 1861(r)(5) of the Act limits current Medicare coverage for
chiropractic treatment by means of the manual manipulation of the spine
for the purpose of correcting a subluxation, defined generally as a
malfunction of the spine. Specifically, Medicare covers three CPT Codes
provided by chiropractors: 98940 (manipulative treatment, 1-2 regions
of the spine), 98941 (manipulative treatment, 3-4 regions of the
spine), and 98942 (manipulative treatment, 5 regions of the spine).
Treatment must be provided for an active subluxation only, and not for
prevention or maintenance. Additionally, treatment of the subluxation
must be related to a neuromusculoskeletal condition where there is a
reasonable expectation of recovery or functional improvement.
Section 651 of the MMA provides for a 2-year demonstration to
evaluate the feasibility and advisability of covering chiropractic
services under Medicare. These services extend beyond the current
coverage for manipulation to care for neuromusculoskeletal conditions
typical among eligible beneficiaries, and will cover diagnostic and
other services that a chiropractor is legally authorized to perform by
the State or jurisdiction in which the treatment is provided. Physician
approval will not be required for these services. The demonstration
must be budget neutral and will be conducted in

[[Page 45852]]

four sites, two rural and two urban. One site of each area type must be
a health professional shortage area (HPSA).
On January 28, 2005, we published a notice in the Federal Register
(70 FR 4130) describing the covered services and site selection for
this demonstration. As recognized in the notice, the statute requires
the Secretary to ensure that aggregate payments made under the Medicare
program do not exceed the amount that would have been paid under the
Medicare program in the absence of this demonstration.
Ensuring budget neutrality requires that the Secretary develop a
strategy for recouping funds should the demonstration result in costs
higher than would occur in the absence of the demonstration. In this
case, we stated we would make adjustments in the national chiropractor
fee schedule to recover the costs of the demonstration in excess of the
amount estimated to yield budget neutrality. We indicated that we will
assess budget neutrality by determining the change in costs based on a
pre/post comparison of costs and the rate of change for specific
diagnoses that are treated by chiropractors and physicians in the
demonstration sites and control sites. We will not limit our analysis
to reviewing only chiropractor claims, because the costs of the
expanded chiropractor services may have an impact on other Medicare
costs.
We anticipate that any necessary reduction will be made in the 2010
and 2011 fee schedules because it will take approximately 2 years to
complete the claims analysis. If we determine that the adjustment for
budget neutrality is greater than 2 percent of spending for the
chiropractor fee schedule codes (comprised of the 3 currently covered
CPT codes 98940, 98941 and 98942), we will implement the adjustment
over a 2-year period. However, if the adjustment is less than 2 percent
of spending under the chiropractor fee schedule codes, we will
implement the adjustment over a 1-year period. We will include the
detailed analysis of budget neutrality and the proposed offset in the
2009 Federal Register publication of the PFS.
PT services that are performed by chiropractors under the
demonstration will be included under the PT cap described in section J
above. We are including these services under the cap because
chiropractors are subject to the same rules as medical doctors for
therapy services under the demonstration. Therefore these services
should be included under the therapy cap. See our Web site http://www.cms.hhs.gov/researchers/demos/eccs/
for additional information

concerning the chiropractic services demonstration.

M. Supplemental Payments to Federally Qualified Health Centers (FQHCs)
Subcontracting With Medicare Advantage Plans

[If you choose to comment on issues in this section, please include the
caption ``SUPPLEMENTAL PAYMENTS--FQHCS'' at the beginning of your
comments.]
Title II of the MMA established the Medicare Advantage (MA)
program. The MA program replaces the Medicare+Choice (M+C) program
established under Part C of the Act. Although the MA program retains
many key features of the M+C program, it includes several new features,
such as the availability of a regional MA plan option. Regional MA
plans must be preferred provider organization (PPO) plans.
Section 237 of the MMA amended section 1833(a)(3) of the Act to
provide supplemental payments to FQHCs that contract with MA
organizations to, in general, cover the difference, if any, between the
payment received by the health center for treating enrollees in MA
plans offered by the MA organization and the payment that the FQHC is
entitled to receive under the cost-based all-inclusive payment rate as
set forth in part 405, subpart X. This new supplemental payment for
covered Medicare FQHC services furnished to MA enrollees augments the
direct payments made by MA Plans to FQHCs for covered Medicare FQHC
services. Medicare's obligation to provide supplemental payments to
FQHCs applies to centers with direct or indirect subcontract
arrangements following a written agreement with MA organizations.
Centers eligible for supplemental payments under section 1833(a)(3)
of the Act, as revised by Section 237 of the MMA, include any facility
qualified to furnish FQHC services described in section 1832(a)(2)(D)
of the Act. Only the following entities are qualified to furnish FQHC
services: (1) entities receiving a grant under section 330 (other than
subsection (h)) of Public Health Services Act or receiving funding from
this grant under a contract with its recipient and meets the
requirements to receive this grant; (2) entities determined by the
Secretary to meet the requirements for receiving this grant; (3)
entities treated by the Secretary, for purposes of Part B, as a
comprehensive Federally funded health center as of January 1, 1990; or
(4) an outpatient health program or facility operated by a tribe or
tribal organization receiving funds under title V of Indian Health Care
Improvement Act.
In order to implement this new payment provision, CMS must
determine whether the Medicare cost-based payments that the FQHC would
be entitled to exceed the amount of payments received by the center
from the MA organization and, if so, pay the difference to the FQHC at
least quarterly. In determining the supplemental payment, the statute
also excludes in the calculation of the supplemental payments any
financial incentives provided to FQHCs under their MA arrangements,
such as risk pool payments, bonuses, or withholds.
Managed care organizations frequently use financial incentives in
their contracts with providers to reduce unnecessary utilization of
services. These incentives may be negative, such as withholding a
portion of the capitation payments, if utilization goals are not
satisfied. Incentives may also be positive, such as a bonus payment if
utilization outcomes are achieved. In both cases, these incentives
(whether positive or negative) are separate from the MA organization's
payment for services provided under its direct or indirect contract
with the FQHC and are prohibited by statute from being included in our
calculation of supplemental payments due to the Medicare FQHC. In other
words, in determining the difference between payments from the MA
organization to the FQHC and what the FQHC will receive on a cost
basis, we are precluded from using the incentive payments in the
calculation of the FQHC supplemental payment. Only capitated per month
per beneficiary or fee-for-service payments from the MA plan for
services furnished to MA enrollees are included in the calculations of
the rate differential.
Under original Medicare, each center is paid an all-inclusive per
visit rate based on its reasonable costs as reported in the FQHC cost
report. The payment is calculated, in general, by dividing the center's
total allowable cost by the total number of visits for FQHC services.
At the beginning of the rate year, the Medicare Fiscal Intermediary
(FI) calculates an interim rate based on estimated allowable costs and
visits from the center if it is new to the FQHC program or actual costs
and visits from the previous cost reporting period for existing FQHCs.
The center's interim rate is reconciled to actual reasonable costs at
the end of the cost reporting period.

[[Page 45853]]

Proposed Payment Methodology
We are proposing a supplemental payment method based on a per visit
calculation subject to an annual reconciliation. The supplemental
payment for FQHC covered services rendered to MA enrollees is equal to
the difference between 100 percent of the FQHC's all-inclusive cost-
based per visit rate and the average per visit rate received by the
center from the MA plan in which the enrollee is enrolled, less any
amount the FQHC may charge as described in section 1857(e)(3)(B) of the
Act. Each center will be required to submit (for the first rate year)
to the intermediary an estimate of the average MA payment per visit for
covered FQHC services. Every eligible center will be required to submit
a detailed estimate of its average per visit payment for enrollees in
each MA plan offered by the MA organization and any other information
as may be required to enable the intermediary to accurately establish
an interim supplemental payment, which will be the difference between
the estimated MA per visit payment rate and the center's interim all-
inclusive cost-based per visit rate. Expected payments from the MA plan
will only be used until actual MA revenue and visits can be collected
on the center's FQHC cost report. The interim and final supplemental
payment amount will vary by center depending on its current Medicare
reimbursement rates and its contractual arrangements with MA plans.
Effective January 1, 2006, eligible FQHCs will report actual
revenue received from the MA plan and visits on their cost reports. At
the end of the cost reporting period the FI would use actual MA revenue
and visit data along with the FQHCs' final all-inclusive payment rate,
to determine the center's final actual supplemental per visit payment
for enrollees in the relevant MA plan. This will serve as the interim
rate for the subsequent rate year. Actual aggregated supplemental
payments will then be reconciled with aggregated interim supplemental
payments, and any underpayment or overpayment thereon will then be
accounted for in determining final Medicare FQHC program liability at
cost settlement. Necessary changes will be made to the FQHC cost report
to effectuate the calculation of the supplemental rate.
A supplemental payment will be made every time a face-to-face
encounter occurs between a MA enrollee and any one of the following
FQHC covered core practitioners: physicians, NPs, PAs, clinical nurse
midwives, clinical psychologists, or clinical social workers. The
supplemental payment is made directly to each qualified center through
the Medicare FI. Each center is responsible for submitting Medicare
claims with the proper codes for these visits. Necessary changes will
be made to the instructions for the FQHC claim form to effectuate the
billing and payment of supplemental payments.
To conform our regulations to the statute, we are proposing to add
Sec. 405.2469 to specify the per visit payment methodology for making
supplemental payments to FQHCs under contract (directly or indirectly)
with MA organizations.

N. National Coverage Decisions Timeframes

[If you choose to comment on issues in this section, please include the
caption ``NCD TIMEFRAMES'' at the beginning of your comments.]
We have established requirements concerning the administrative
review of local coverage determinations (LCDs) and National Coverage
Determinations (NCDs) at 42 CFR part 426, with subpart C specifically
addressing the general provisions for the review of LCDs and NCDs.
Under our existing regulations in part 426, subpart C, the Departmental
Appeals Board may stay the adjudicatory proceedings in certain
circumstances to allow CMS to consider significant new evidence that is
submitted in the context of a challenge to an NCD. Our previous
regulations at Sec. 426.340(e), permitted a brief stay of the
adjudicatory proceedings (not more than 90 days), for CMS to complete
its reconsideration of the NCD. Those time frames, although short, were
consistent with the previous process for making NCDs that did not
require publication of a proposed decision memorandum and an
opportunity for public comment on the proposed decision memorandum.
Section 731 of the MMA of 2003 modifies certain timeframes in the
NCD review process. Specifically, the MMA amended section 1862(l) of
the Act to specify that for NCD requests not requiring an external
technology assessment (TA) or Medicare Coverage Advisory Committee
(MCAC) review, the decision on the request shall be made not later than
6 months after the date the request is received. For those NCD requests
requiring either an external TA or MCAC review, where a clinical trial
is not requested, the decision on the request must be made not later
than 9 months after the date the request is received.
Furthermore, section 731 of the MMA stipulates that not later than
the end of the 6 or 9 month period described above, a draft of the
proposed decision must be made available on the CMS website (or other
appropriate means) for public comment. This comment period will last 30
days. Comments will be reviewed and a final decision will be issued not
later than 60 days after the conclusion of the comment period. A
summary of the public comments received and responses to the comments
will continue to be included in the final NCD.
In light of the procedural change made by section 731 of the MMA
that requires a public comment period before we can issue a final
determination for NCDs, we are proposing to amend Sec. 426.340 to
reflect the new timeframes in the MMA. The regulation is amended to
state that if the CMS informs the Board that a revision or
reconsideration was or will be initiated, then the Board will stay the
proceedings and set appropriate timeframes by which the revision or
reconsideration will be completed, that reflects sufficient time for
the publication of a proposed determination, a thirty day public
comment period, and time for CMS to prepare a final determination that
responds to public comments as specified in section 1862(l) of the Act.
Subsequently, the reference to the 90 day reconsideration period in
Sec. 426.340(e)(3) will be eliminated for NCD appeals to reflect the
new timeframes in the MMA. The LCD timeframes will not be affected by
this change.

O. Coverage of Screening for Glaucoma

[If you choose to comment on issues in this section, please include the
caption ``COVERAGE OF SCREENING--GLAUCOMA'' at the beginning of your
comments.]
On January 1, 2002, we implemented regulations at Sec.
410.23(a)(2), Conditions for and limitations on coverage of screening
for glaucoma, requiring that the term ``eligible beneficiary'' be
defined to include individuals in the following high risk categories:
(i) Individual with diabetes mellitus; (ii) Individual with a family
history of glaucoma; or (iii) African-Americans age 50 and over. Based
on our review of the current medical literature, we believe that there
are other beneficiaries who are at risk for glaucoma and should be
included in the definition of eligible beneficiary for purposes of the
glaucoma screening benefit.
The Eye Diseases Prevalence Research Group recently reviewed the
literature on the prevalence of glaucoma in adults in the United States
(Arch Ophthalmol 2004; 122:532-538) and provided separate data for
Hispanic persons. They

[[Page 45854]]

reported that Hispanic subjects had a marked higher prevalence in the
oldest age group. After controlling for age and gender, rates of open
angle glaucoma in Hispanic persons did not differ significantly from
that among whites, except for those age 65 years and older. The
prevalence of open angle glaucoma in Hispanic persons age 65 years and
older was significantly higher than among whites. Overall, Hispanic
subjects had a significantly lower prevalence of open angle glaucoma
than African-Americans. One notable limitation of this review article
is that the data on Hispanic persons came from a single study of mostly
Mexican-born Hispanics from Arizona (Quigley HA et al. The prevalence
of glaucoma in a population based study of Hispanic subjects: proyecto
VER. Ann Ophthalmol 2001; 119:1819-1825). We believe the evidence is
adequate to conclude that Hispanic persons age 65 and older are at high
risk and could benefit from glaucoma screening.
Therefore in Sec. 410.23(a)(2), we are proposing to revise the
definition of an eligible beneficiary to include Hispanic Americans age
65 and over. If this proposal is adopted in the final rule, effective
January 1, 2006, Hispanic Americans age 65 and older would qualify for
Medicare coverage and payment for glaucoma screening services, if the
applicable condition and limitations on coverage of screening for
glaucoma specified in Sec. 410.23(b) and (c) are met.
In view of the possibility that it may be appropriate to include
other individuals in the statutory definition of those at ``high risk''
for glaucoma, we are requesting comments on this issue. Specifically,
we request that anyone providing us with specific recommendations on
this issue provide documentation in support of them from the peer-
reviewed medical literature.

P. Physician Referrals for Nuclear Medicine Services and Supplies to
Health Care Entities With Which They Have Financial Relationships

[If you choose to comment on issues in this section, please include the
caption ``NUCLEAR MEDICINE SERVICES'' at the beginning of your
comments.]
1. Background
Under section 1877 of the Act, a physician may not refer a Medicare
patient for certain designated health services (DHS) to an entity with
which the physician (or an immediate family member of the physician)
has a financial relationship, unless an exception applies. Section 1877
of the Act also prohibits the DHS entity from submitting claims to
Medicare or billing the beneficiary or any other entity for Medicare
DHS that are furnished as a result of a prohibited referral. Sections
1877(h)(6)(D) and (E) of the Act define DHS to include ``[r]adiology
services, including magnetic resonance imaging, computerized axial
tomography and ultrasound services'' and ``[r]adiation therapy services
and supplies.'' This proposed rule would include diagnostic and
therapeutic nuclear medicine procedures under the DHS categories for
radiology and certain other imaging services and radiation therapy
services and supplies, respectively.
On January 9, 1998, we published a proposed rule (63 FR 1659) that,
among other things, proposed regulatory definitions for the various DHS
categories listed in the statute. In that proposed rule, we proposed to
include nuclear medicine services in the definition of radiology
services. In the January 4, 2001 physician self-referral Phase I final
rule (66 FR 856), we defined ``radiology and certain other imaging
services'' and ``radiation therapy services and supplies'' at Sec.
411.351. We did not include nuclear medicine services in either
definition because, at that time, we believed that diagnostic nuclear
medicine services were not commonly considered to be radiology services
and that therapeutic nuclear medicine services were not commonly
considered to be radiation therapy services. We received one comment
urging us to include nuclear medicine services in the definition of
radiology services. In the Phase II final rule, published on March 26,
2004 (69 FR 16054), we indicated that we were concerned with the issues
raised by the commenter and that we might revisit the issue of nuclear
medicine in a proposed rule.
2. Proposal To Include Nuclear Medicine
Our knowledge of nuclear medicine, which is based in part on our
awareness of the health care community's view of nuclear medicine, has
changed significantly since we published the Phase I final rule. As a
result, we have reconsidered the question of whether nuclear medicine
services should be considered a DHS. We are proposing to amend Sec.
411.351 to include diagnostic nuclear medicine services in the
definition of ``radiology and certain other imaging services'' and to
include therapeutic nuclear medicine services in the definition of
``radiation therapy services and supplies.'' We believe this change is
needed in light of the statute's inclusion of radiology and radiation
therapy as DHS. We also believe this change is appropriate, given the
current manner in which these services are covered and paid under the
Medicare program. As noted in the Phase I final rule (66 FR 860) and
the Phase II final rule (69 FR 16071), we interpret the self-referral
prohibition in a manner that is consistent with existing Medicare
coverage and payment rules. In addition, we believe nuclear medicine
services (both diagnostic and therapeutic services and supplies) pose
the same risk of abuse that the Congress intended to eliminate for
other types of radiology, imaging, and radiation therapy services and
supplies. In Sec. 411.351 (Definitions), we would revise the
definition of ``Radiation therapy services and supplies'' to remove the
language that excluded therapeutic nuclear medicine services and
supplies from the definition. We would also revise the definition of
``Radiology and certain other imaging services'' to remove the language
that excluded diagnostic nuclear medicine services from the definition.
In addition, we would revise the list of radiology services on our
website and in annual updates to include CPT and HCPCS codes that
include the diagnostic uses of nuclear medicine, and the list of
radiation therapy services and supplies to include the therapeutic use
of nuclear medicine. For purposes of this proposed rule, we have
attached Addendum G, which contains the codes for all diagnostic
nuclear medicine procedures, all therapeutic nuclear medicine
procedures, and the nuclear medicine radiopharmaceuticals. In the final
rule, we intend to include the diagnostic nuclear medicine services in
the list of codes for ``Radiology and Certain Other Imaging Services''
and the therapeutic nuclear medicine services in the list of
``Radiation Therapy Services and Supplies.'' Each radiopharmaceutical
would be included in each category in which it is used, that is, some
may be included in both categories. We welcome comment on whether the
list is accurate and complete.
Section 1877(h)(6)(D) of the Act provides that ``radiology
services, including magnetic resonance imaging, computerized axial
tomography scans, and ultrasound services'' are DHS. We believe it is
appropriate to include nuclear diagnostic services as radiology
services within the meaning of this statute.
Dorland's Illustrated Medical Dictionary, 29th Edition, 2000, at
1512, defines radiology as ``that branch of the health sciences dealing
with radioactive substances and radiant energy and with the diagnosis
and treatment of disease by means of both ionizing (that is,

[[Page 45855]]

x-rays) and non-ionizing (that is, ultrasound) radiations.'' \4\
Nuclear medicine uses very small amounts of radioactive materials
(radiopharmaceuticals) to diagnose and treat disease. In nuclear
imaging, the radiopharmaceuticals are detected by special types of
cameras that work with computers to provide very precise pictures about
the area of the body being imaged. In treatment or therapy, the
radiopharmaceuticals go directly to the organ being treated. The amount
of radiation in a typical nuclear imaging procedure is comparable to
that received during a diagnostic x-ray. The Society for Nuclear
Medicine (SNM) states that the science of nuclear medicine,
particularly nuclear medicine imaging, provides physicians with
information about both structure and function of certain internal body
organs. SNM further states that ``unlike a diagnostic X-ray where
radiation is passed through the body, nuclear medicine tracers are
taken internally; external detectors measure the radiation that they
emit.'' (http://www.snm.org) The ACR, in its March 26, 2004 letter to

us, stated that nuclear medicine is considered a part of the specialty
of radiology. It noted that the American Board of Radiology certifies
diagnostic radiologists through an examination process that includes
nuclear medicine in both the written and oral exams. The AMA also
recognizes nuclear medicine as a subspecialty of radiology. The AMA's
``Current Procedural Terminology CPT 2005'', (2004), identifies its
``Radiology Guidelines (including Nuclear Medicine and Diagnostic
Ultrasound)'' as CPT codes in the 70000-79999 series. In its radiology
section, at 273-302, the AMA includes both diagnostic imaging
procedures (including diagnostic nuclear medicine), and therapeutic
procedures. The radiology subsections are as follows: Diagnostic
Radiology (Diagnostic Imaging) is comprised of CPT codes 70010-76499.
Diagnostic Ultrasound is comprised of CPT codes 76506-76999. Radiation
Oncology is comprised of CPT codes 77261-77799. Nuclear Medicine
(Diagnostic) is comprised of CPT codes 78000-78999, and Nuclear
Medicine (Therapeutic) is comprised of CPT codes 79005-79999.
---------------------------------------------------------------------------

\4\ The Encyclopaedia Britannica online explains that radiology
is a branch of medicine using radiation for the diagnosis and
treatment of disease. It states that ``Radiology originally involved
the use of X rays in the diagnosis of disease and the use of X rays,
gamma rays, and other forms of ionizing radiation in the treatment
of disease. In more recent years radiology has come also to embrace
diagnosis by a method of organ scanning with the use of radioactive
isotopes and also with non-ionizing radiation, such as ultrasound
waves and nuclear magnetic resonance. Similarly, the scope of
radiotherapy has extended to include, in the treatment of cancer,
such agents as hormones and chemotherapeutic drugs.''
(``radiology.'' Encyclopaedia Britannica, 2005, Encyclopaedia
Britannica Online 3 June 2005 http://search.ed.com/eb/article?tocid=9062423.
)

---------------------------------------------------------------------------

We also note that the Medicare statute places diagnostic nuclear
medicine in the same category as diagnostic radiology for coverage and
payment purposes. That is, we cover diagnostic nuclear medicine under
our authority in section 1861(s)(3) of the Act, the same statutory
section that authorizes coverage for diagnostic X-rays, CT scans, MRIs,
and ultrasound services. In addition, section 1833(t) of the Act sets
forth Medicare payment for ``outpatient hospital radiology services
(including diagnostic and therapeutic radiology, nuclear medicine and
CAT scan procedures, magnetic resonance imaging, and ultrasound and
other imaging services, but excluding screening mammography)'' as
described in section 1833(a)(2)(E)(i) of the Act.
For these reasons, we believe that the Congress intended
``radiology services'' in section 1877(h)(6) of the Act to include
diagnostic and therapeutic nuclear medicine. While we believe that
diagnostic nuclear medicine is a subset of radiology, even if it is
not, it is an imaging service covered by 1861(s)(3) of the Act, and of
the type that the Congress intended to prohibit.
Similarly, we believe it is proper to interpret the DHS category
described in section 1877(h)(6)(E) of the Act, ``radiation therapy
services and supplies'' to include therapeutic nuclear medicine
services. Radiation therapy is the treatment of disease (especially
cancer) by exposure to radiation from a radioactive substance.
Therapeutic nuclear medicine employs radioactive substances known as
radionuclides. Medicare covers therapeutic nuclear medicine services
and other forms of radiation therapy under section 1861(s)(4) of the
Act, which authorizes coverage and payment for ``X-ray, radium, and
radioactive isotope therapy.''
Although our proposal to include as DHS diagnostic nuclear medicine
services and therapeutic nuclear medicine services and supplies is
based primarily on our view that nuclear medicine services are
radiology and radiation therapy within the meaning of section
1877(h)(6) of the Act, we would resolve any doubt on the matter in
favor of our proposal because of the risk of abuse and anti-competitive
behavior inherent in physician self-referrals for nuclear medicine
services. The risk of abuse and anti-competitiveness is exacerbated by
the greater affordability of nuclear medicine equipment, by our
expansive coverage of nuclear medicine services, and by the setting in
which mostly diagnostic and some therapeutic nuclear medicine services
now are primarily performed.
At the time we were preparing the Phase I final rule, the vast
majority of nuclear medicine procedures were already subject to the
physician self-referral prohibition because they were primarily
performed in hospital facilities rather than in physician-owned
freestanding facilities. Thus, they were performed as inpatient or
outpatient hospital services and were therefore DHS subject to the
self-referral prohibition in accordance with section 1877(h)(6)(K) of
the Act. Since publication of the Phase I final rule, however, many
more nuclear medicine procedures have been performed in physician
offices or in physician-owned freestanding facilities. This has
occurred for several reasons. First, positron emission tomography (PET)
scanners may be used outside of a hospital setting. Second, there have
been significant technological advances; an entity does not have to own
a particle accelerator to produce the radioactive tracer necessary for
a PET scan because a small network of pharmacies now distribute
radioactive tracer. Third, our coverage of PET scans has increased
dramatically. We began covering PET scans in December 2000. This
initial, limited, coverage was for only a few types of cancers. Since
December 2001, we have significantly expanded our coverage to include
an increased number of cancers and other conditions. In his March 17,
2005 testimony before the Congress concerning imaging services, the
Executive Director of the MedPAC noted that diagnostic imaging services
paid under Medicare's PFS grew more rapidly than any other type of
physician service between 1999 and 2003. Whereas physician services
grew 22 percent in those years, imaging services grew twice as fast, by
45 percent. This measure is the growth in the volume and intensity of
services per beneficiary. However, not all imaging services grew at
that rate, and some grew even faster. Nuclear medicine grew 85 percent
between those years (1999 and 2003).
Under Medicare, almost all imaging services have two distinct
parts: (1) The performance of the test; and (2) the interpretation of
the results by a physician. If the study is performed in a physician
office, the physician submits a TC claim and the interpreting physician
submits a PC claim. Tests performed in a hospital result in a facility
payment rather than a TC claim.

[[Page 45856]]

Thus, if more imaging services are performed in physician offices, TC
claims will increase as a share of all fee schedule imagining claims.
An increase in TC claims occurred between 1999 and 2002, which
indicates that imaging procedures shifted to physician offices. Because
the TC of an imaging service generally is assigned a higher payment
rate than the PC, growth of TC claims as a share of all imaging claims
leads to additional payments under the PFS. These additional payments
accounted for about 20 percent of the growth in the volume and
intensity of imaging services between 1999 and 2002 (MedPAC 2004).
Recent studies and articles indicate that risk of abuse for
radiology services (and diagnostic nuclear medicine) will continue if
not specifically prohibited. The Journal of Radiology reported what
happened after a managed care organization halted reimbursement to non-
radiologists for some forms of imaging (other than CT scans, MRIs,
sonography or nuclear medicine) but left the physicians free to refer
their patients to radiologists if they believe the imaging they had
been conducting on their patients was needed. The following specialties
were not allowed to perform any imaging services: Gastroenterologists,
general surgeons, nephrologists, neurosurgeons, oncologists, pediatric
surgeons, and physiatrists. The study found that imaging declined 20 to
25 percent from what was expected given the previous trend of imaging
growth, and an absolute decline of 6 percent. Prior to these
prohibitions, non-radiologists were performing 39 percent of outpatient
radiographs. The 20 to 25 percent decline from the trend was roughly
half of this 39 percent initial share. That is, the research showed
that approximately half of the imaging performed by self-referrers
ceased when these self-referrers lost their financial interest in the
services. (The Effect of Imaging Guidelines on the Number and Quality
of Outpatient Radiographic Examinations. AJR 2000; 175:9-15. Harold
Moskowitz, Jonathan Sunshine, Donald Grossman, Leslie Adams, Lynn
Gelinas. See also Recent Rapid Increase in Utilization of Radionuclide
Myocardial Perfusion Imaging and Related Procedures; 1996-1998 Practice
Patterns. Radiology 2002; 222:144-148. David C. Levin, MD, Laurence
Parker, PhD, Charles M. Intenzo, MD, Jonathan H. Sunshine, PhD.)
(Growth in utilization of Radionuclide Myocardial Perfusion Imaging
(MPI) between 1996 and 1998 was almost 10 times higher among
cardiologists than radiologists). Although the Moskowitz study did not
include nuclear imaging, we do not see a basis for assuming that
physician behavior would be different for nuclear imaging than it is
for other imaging services. To the contrary, we believe financial
relationships related to diagnostic and therapeutic nuclear medicine,
including joint ventures and leases, pose a risk of anti-competitive
behavior and risk of abuse comparable to that associated with
investment interests in CT, MRI, ultrasound, other radiology ventures,
and radiation therapy facilities.
Thus, we believe our proposal to include nuclear medicine as a DHS
is consistent with the intent of the Congress to prevent over-
utilization of health care services covered by Medicare and to prohibit
physicians from selecting treatment modalities based on financial
incentives.
We have been told that consultants and others have been actively
encouraging physicians to participate in joint ventures to purchase
diagnostic nuclear medicine machines for investment because Phase I did
not include nuclear medicine services. We have received many inquiries
from physicians and attorneys asking whether physician ownership of,
and referral to, nuclear medicine facilities complies with the
physician self-referral provisions. We are mindful that our previous
guidance, particularly that provided in the Phase I final rule, may
have encouraged physician investment in nuclear medicine equipment and
ventures, particularly PET scanners, which are very expensive and often
require a substantial financial investment on the part of physician-
owners. We are aware that including nuclear medicine services as DHS
will require that physician-investors in nuclear medicine equipment
(including PET scanners) divest their ownership or investment interests
or be precluded from submitting claims to Medicare or billing the
beneficiary or any entity for the nuclear medicine DHS referred by
physician-owners and performed with the physician-owned equipment
(unless the arrangement falls within an exception to section 1877 of
the Act).
We are soliciting comments as to whether, or how, to minimize the
impact on physicians who are currently parties to arrangements that
involve nuclear medicine services and supplies (that is, by specifying
a delayed effective date or by grandfathering certain arrangements).

Q. Sustainable Growth Rate

[If you choose to comment on issues in this section, please include the
caption ``SGR'' at the beginning of your comments.]
1. Current Estimate
Sections 1848(d) and (f) of the Act require the Secretary to set
the physician fee schedule update under the SGR system. We are
currently forecasting an update of -4.3 percent for 2006, and
anticipate further negative updates in later years. As in the past, we
will include a complete discussion of our methodology for calculating
the SGR in the final rule.
Underlying the projected rate reductions is substantial growth in
Medicare spending. The vast majority of spending growth in 2004 is
attributable to the following five areas:
An increase in spending for office visits, with a shift
toward longer and more intense visits.
Greater utilization of minor procedures, including
physical therapy and drug administration.
More patients receiving more frequent and more complex
imaging services, such as MRIs and echocardiograms.
More laboratory and other physician-ordered tests.
Higher utilization of physician-administered prescription
drugs.
We would like to understand these trends further, including which
changes in utilization are likely to be associated with important
health improvements and which ones may have more questionable health
benefits. Consequently, we have had discussions on these topics with
numerous physician and nonphysician groups, as well as other Medicare
stakeholders such as the Congress and the Medicare Payment Advisory
Commission (MedPAC).
The AMA has provided us with several illustrations of recent trends
in medical practice that it believes contribute to the overall growth
in spending on physicians' services. For example, the AMA points out
that some payers are encouraging physicians to determine the left
ventricular valve function of their patients with congestive heart
failure using an echocardiogram. Also, five years ago, statin therapy
to lower cholesterol levels was only recommended for patients as old as
79. Now, patients as old as 86 may receive statin therapy, resulting in
additional laboratory tests.
The AMA provided many other examples, and we are evaluating them to
better understand their impact on physician spending. With regard to
the specific examples mentioned above, we agree the utilization of
these services has increased. However, in the case of

[[Page 45857]]

echocardiograms, the 19 percent rate of increase from 2003 to 2004 is
similar to the increase observed for all imaging services. There was
also a 17 percent rate of increase in laboratory tests (lipid panels)
consistent with more patients receiving statin therapy (new
prescriptions require more frequent visits and more lab tests).
However, total spending for the service was only $42 million.
2. Ongoing Issues
In addition to providing adequate payments, Medicare's physician
payment system should encourage physicians to provide quality care and
prevent avoidable health care costs. We support MedPAC's recommendation
for the development of measures related to the quality and efficiency
of care furnished by physicians. Physicians' decisions are central to
the health care their patients receive, and there are substantial
variations across geographic areas and among similar specialties in the
use of services, including those accounting for most of the spending
growth. We want to work with physicians in this effort to better
understand the consequences of these differences in the use of follow-
up visits, imaging procedures, laboratory testing, minor therapeutic
procedures, and physician-administered drugs for the health of
beneficiaries, and to identify ways to provide better support for
utilization decisions that clearly increase the quality of care while
avoiding unnecessary costs for beneficiaries and the Medicare program.
We are already engaged with the physician community in developing
useful quality measures, and we expect to intensify these efforts given
the rapid growth in spending. As an early step in using such measures
to improve care, we are now exploring means of sharing information
related to quality of care and use of resources with individual
physicians. We anticipate that only data showing the quality of care
and resource use in the aggregate would be released to the public. Some
measures can be derived from claims data with little or no collection
burden (for example, information on the frequency and complexity of
minor therapy procedures, imaging procedures, lab test, and visits for
their patients with chronic illnesses.) We believe that by providing
feedback to physicians individually and by working with physician
groups to understand and respond to the overall trends, we can provide
more useful information and support physicians' efforts to run more
efficient practices.
Finally, we continue to work closely with the medical community,
Congress, MedPAC, and others toward a long-term approach ensuring
adequate physician payments in the future while also ensuring
Medicare's payments are made only for care that is necessary and
beneficial. We are particularly interested in comments that build on
recent progress on payment reforms to promote higher quality and avoid
unnecessary costs, and that are consistent with the President's
budgetary goal of paying for better value in Medicare without
increasing overall Medicare costs. For example, we are interested in
ways to promote higher-quality ambulatory care that can achieve
offsetting savings by avoiding complications or unnecessary services.
In addition, it has been suggested that we have the authority to make
certain administrative adjustments in the SGR methodology, such as
removing Part B drug payments from the calculation of both projected
and actual expenditures (retroactive to 1996) that are used to set the
spending target. We encourage comments regarding possible changes to
the SGR methodology, including the legal theories that support them. We
are particularly interested in comments on steps to promote physician
payment adequacy without increasing overall Medicare costs.

III. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act
of 1995 requires that we solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
We are soliciting public comment on each of these issues for the
following sections of this document that contain information collection
requirements:

Section 413.180 Procedures for Requesting Exceptions to Payment Rates

Paragraph (b) specifies the criteria for a pediatric ESRD facility
requesting an exception to payment rates.
Paragraph (e) outlines the documentation that a pediatric ESRD
facility must submit to CMS when requesting an exception to its payment
rates. Paragraph (i) discusses the period of approval for payment
exception requests. A prospective exception payment rate approved by
CMS applies for the period from the date the complete exception request
was filed with its intermediary until thirty days after the
intermediary's receipt of the facility's letter notifying the
intermediary of the facility's request to give up its exception rate.
The burden associated with the requirements in paragraph (e) is the
time and effort required by the facility to prepare and submit the
exception request to CMS. The burden associated with the requirement in
paragraph (i) is the time and effort required by the facility to draft
and mail the letter that notifies the intermediary of the facilities
request to give up its exception rate.
The collection requirement in this section has not changed. While
this requirement is subject to the PRA, this requirement is currently
approved in OMB No. 0938-0296.

Section 413.184 Payment Exception: Pediatric Patient Mix

Paragraph (b) specifies the documentation requirements that a
pediatric ESRD facility must meet in order to qualify for an exception
to its prospective payment rate based on its pediatric patient mix. In
addition to the other qualifications specified in this section, this
section states that a facility must submit a listing of all outpatient
dialysis patients (including all home patients) treated during the most
recently completed and filed cost report.
The burden associated with this requirement is the time and effort
for the facility to submit a listing of all outpatient dialysis
patients (including all home patients) treated during the most recently
completed and filed cost report.
The collection requirement in this section has not changed. While
this requirement is subject to the PRA, this requirement is currently
approved in OMB No. 0938-0296.

Section 413.186 Payment Exception: Self-Dialysis Training Costs in
Pediatric Facilities

In summary, this section outlines the requirements a pediatric ESRD
facility

[[Page 45858]]

must meet to qualify for an exception to the prospective payment rate
based on self-dialysis training costs. Paragraph (e) states that a
facility must provide specific information to support its exception
request. Paragraph (f) states that in addition to the other
qualifications outlined in this section, pediatric ESRD facility must
submit with its exception request a list of patients, by modality,
trained during the most recent cost report period, in order to justify
its accelerated training exception request.
The burden associated with these requirements is the time and
effort for the facility to prepare and submit the required information
to support its exception request, and the time and effort for the
pediatric ESRD facility to prepare and submit with its exception
request a list of patients, by modality, trained during the most recent
cost report period.
The collection requirements in this section have not changed. While
these requirements are subject to the PRA, they are currently approved
in OMB No. 0938-0296.

Section 414.804 Basis of Payment

In summary, this section requires manufacturers to report ASP data
to CMS. This section details the process a manufacturer must follow to
calculate the ASP. The ASP reporting requirements are discussed in
further detail in the interim final rule with comment, Medicare
Program; Manufacturer Submission of Manufacturer's Average Sales Price
(ASP) Data for Medicare Part B Drugs and Biologicals, that published on
April 2, 2004 in the Federal Register (69FR17935-17941).
The burden associated with these requirements is the time and
effort required by manufacturers of Medicare Part B Drugs and
biologicals to prepare and submit to the required ASP data to CMS.
While these requirements are subject to the PRA, the requirements
are currently approved in OMB No. 0938-0921, with a current expiration
date of September 30, 2007.
We intend to revise this information collection to include adequate
instructions for manufacturers to report the ASP, the WAC, and other
data elements. These revisions will be addressed in detail in a revised
information collection request in accordance with the Paperwork
Reduction Act of 1995.
We have submitted a copy of this proposed rule to OMB for its
review of the information collection requirements described above.
These requirements are not effective until they have been approved by
OMB.
If you comment on these information collection and recordkeeping
requirements, please mail copies directly to the following:
Centers for Medicare & Medicaid Services, Office of Strategic
Operations and Regulatory Affairs, Regulations Development Group, Attn:
Jim Wickliffe, [CMS-1502-P], Room C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850; and
Office of Information and Regulatory Affairs, Office of Management
and Budget, Room 10235, New Executive Office Building, Washington, DC
20503, Attn: Christopher Martin, CMS Desk Officer, CMS-1502-P,
Christopher_Martin@omb.eop.gov. Fax (202) 395-6974.

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

V. Regulatory Impact Analysis

[If you choose to comment on issues in this section, please include the
caption ``IMPACT'' at the beginning of your comments.]
We have examined the impact of this rule as required by Executive
Order 12866 (September 1993, Regulatory Planning and Review), the
Regulatory Flexibility Act (RFA) (September 16, 1980 Pub. L. 96-354),
section 1102(b) of the Social Security Act, the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
Executive Order 12866 (as amended by Executive Order 13258, which
merely reassigns responsibilities of duties) directs agencies to assess
all costs and benefits of available regulatory alternatives and, when
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). A
regulatory impact analysis must be prepared for proposed rules with
economically significant effects (that is, a proposed rule that would
have an annual effect on the economy of $100 million or more in any one
year, or would adversely affect in a material way the economy, a sector
of the economy, productivity, competition, jobs, the environment,
public health or safety, or State, local, or tribal governments or
communities). As indicated in more detail below, we estimate that the
PFS provisions included in this proposed rule will redistribute more
than $100 million in one year. We are considering this proposed rule to
be economically significant because its provisions are estimated to
result in an increase, decrease or aggregate redistribution of Medicare
spending that will exceed $100 million. Therefore, this proposed rule
is a major rule and we have prepared a regulatory impact analysis.
The RFA requires that we analyze regulatory options for small
businesses and other entities. We prepare a regulatory flexibility
analysis unless we certify that a rule would not have a significant
economic impact on a substantial number of small entities. The analysis
must include a justification concerning the reason action is being
taken, the kinds and number of small entities the rule affects, and an
explanation of any meaningful options that achieve the objectives with
less significant adverse economic impact on the small entities.
Section 1102(b) of the Act requires us to prepare a regulatory
impact analysis for any proposed rule that may have a significant
impact on the operations of a substantial number of small rural
hospitals. This analysis must conform to the provisions of section 603
of the RFA. For purposes of section 1102(b) of the Act, we define a
small rural hospital as a hospital that is located outside a
Metropolitan Statistical Area and has fewer than 100 beds. We have
determined that this proposed rule would have minimal impact on small
hospitals located in rural areas. Of 213 hospital-based ESRD facilities
located in rural areas, only 40 are affiliated with hospitals with
fewer than 100 beds.
For purposes of the RFA, physicians, nonphysician practitioners,
and suppliers are considered small businesses if they generate revenues
of $6 million or less. Approximately 95 percent of physicians are
considered to be small entities. There are about 875,000 physicians,
other practitioners and medical suppliers that receive Medicare payment
under the PFS.
For purposes of the RFA, approximately 90 percent of suppliers of
durable medical equipment (DME) and prosthetic devices are considered
small businesses according to the Small Business Administration's (SBA)
size standards. We estimate that 106,000 entities bill Medicare for
durable medical equipment, prosthetics, orthotics, and supplies
(DMEPOS) each year. Total annual estimated Medicare

[[Page 45859]]

revenues for DME suppliers exceed approximately $8.5 billion in 2004.
Of this amount, approximately $1.4 billion were for nebulizer drugs in
2004. The vast majority, 95 percent, of retail pharmacy companies are
small businesses as measured by the SBA size standard. Approximately,
16,000 pharmacies billed Medicare for immunosuppressive, oral anti-
cancer, or oral anti-emetic drugs in 2004. Pharmacies received Medicare
revenues for those drugs of approximately $350 million in 2004.
In addition, most ESRD facilities are considered small entities,
either based on nonprofit status or by having revenues of $29 million
or less in any year. We consider a substantial number of entities to be
affected if the proposed rule is estimated to impact more than 5
percent of the total number of small entities. Based on our analysis of
the 896 nonprofit ESRD facilities considered small entities in
accordance with the above definitions, we estimate that the combined
impact of the proposed changes to payment for renal dialysis services
included in this proposed rule would have a 1.3 percent increase in
overall payments relative to current overall payments.
The analysis and discussion provided in this section, as well as
elsewhere in this proposed rule, complies with the RFA requirements.
Section 202 of the Unfunded Mandates Reform Act of 1995 also
requires that agencies assess anticipated costs and benefits before
issuing any rule that may result in expenditures in any year by State,
local, or tribal governments, in the aggregate, or by the private
sector, of $110 million. Medicare beneficiaries are considered to be
part of the private sector for this purpose.
We have examined this proposed rule in accordance with Executive
Order 13132 and have determined that this regulation would not have any
significant impact on the rights, roles, or responsibilities of State,
local, or tribal governments. A discussion concerning the impact of
this rule on beneficiaries is found later in this section.
We have prepared the following analysis, which, together with the
information provided in the rest of this preamble, meets all assessment
requirements. It explains the rationale for and purposes of the rule;
details the costs and benefits of the rule; analyzes alternatives; and
presents the measures we propose to use to minimize the burden on small
entities. As indicated elsewhere in this proposed rule, we propose to
change our methodology for calculating resource-based practice expense
RVUs and make a variety of other changes to our regulations, payments,
or payment policies to ensure that our payment systems reflect changes
in medical practice and the relative value of services. We provide
information for each of the policy changes in the relevant sections of
this proposed rule. We are unaware of any relevant Federal rules that
duplicate, overlap or conflict with this proposed rule. The relevant
sections of this proposed rule contain a description of significant
alternatives if applicable.

A. Resource-Based PE RVUs

Table 30 below shows the specialty level impact on payment of
changes to the PE methodology being proposed for CY 2006. The columns
in the table demonstrate the estimated impacts on payments (relative to
estimated 2006 payments, absent any adjustment for inflation or
utilization) during each year of the transition. For example, the first
column displays the impact of blending 25 percent of the PE RVUs
calculated using the methodology we are proposing with current PE RVUs.
The percent of the RVUs based on the proposed method increase until the
transition is complete in 2009.
Our estimates of changes in physician Medicare revenues for PFS
services compare payment rates for CY 2006 with payment rates for CY
2005 using CY 2004 Medicare utilization for both years. In general,
updating the utilization data has little or no impact on total payments
to a specialty, but the practice expense values for a new code may
change because we did not initially have Medicare utilization data to
determine the specialty mix for the service. In these cases, we either
assigned the code to a particular specialty's practice expense pool
based on the specialty most likely to provide the service, or we used
the ``all physician'' practice expense pool to determine the code's
practice expense RVUs. While we try to minimize instability in the
practice expense RVUs for new services by assigning the specialty that
is most likely to perform the service until such time as we have actual
utilization data, the addition of actual utilization data may still
result in some change to the practice expense RVUs during the first few
years a code is in existence.
The estimated payment impacts reflect the averages for each
specialty based on Medicare utilization. To the extent that there are
year-to-year changes in the volume and mix of services provided by a
specialty, the actual impact on total Medicare revenues may be
different than those shown here. Also, the payment impact for an
individual physician may be different from the specialty average
impact, based on the mix of services the physician provides. Because
physicians, practitioners and suppliers, furnish services to both
Medicare and non-Medicare patients and they may receive substantial
Medicare revenues for services that are not paid under the PFS, the
average change in total revenues for any specialty, practitioner or
supplier, would be less than the impacts displayed here. For instance,
independent laboratories receive approximately 80 percent of their
Medicare revenues from clinical laboratory services that are not paid
under the PFS. The table shows only the payment impacts on PFS
services.
We modeled the impact of the proposed changes to the practice
expense methodology and illustrated the effect in Table 30 below.

Table 30.--Impact of Practice Expense Changes on Total Medicare Allowed Charges by Physician, Practitioner and
Supplier Subcategory
----------------------------------------------------------------------------------------------------------------
2006 (25% 2007 (50% 2008 (75% 2009 (100%
Specialty Blend) Blend) Blend) Blend)
----------------------------------------------------------------------------------------------------------------
Physicians:
Allergy/Immunology.......................... 0.6% 1.1% 1.7% 2.3%
Anesthesiology.............................. -0.7% -1.5% -2.2% -2.9%
Cardiac Surgery............................. -1.0% -2.0% -2.9% -3.9%
Cardiology.................................. -0.5% -1.1% -1.6% -2.1%
Colon and Rectal Surgery.................... 0.7% 1.5% 2.2% 3.0%
Critical Care............................... -0.3% -0.5% -0.8% -1.0%
Dermatology................................. 4.1% 8.4% 12.8% 17.5%

[[Page 45860]]

Emergency Medicine.......................... -0.4% -0.8% -1.3% -1.7%
Endocrinology............................... -0.5% -1.0% -1.5% -1.9%
Family Practice............................. 0.1% 0.1% 0.2% 0.2%
Gastroenterology............................ 1.4% 2.8% 4.3% 5.7%
General Practice............................ 0.2% 0.3% 0.5% 0.7%
General Surgery............................. 0.2% 0.3% 0.5% 0.6%
Geriatrics.................................. -0.2% -0.5% -0.7% -1.0%
Hand Surgery................................ -0.5% -1.0% -1.5% -1.9%
Hematology/Oncology......................... 0.4% 0.7% 1.1% 1.4%
Infectious Disease.......................... -0.1% -0.2% -0.2% -0.3%
Internal Medicine........................... -0.1% -0.3% -0.4% -0.6%
Interventional Radiology.................... 0.2% 0.5% 0.7% 0.9%
Nephrology.................................. -0.2% -0.4% -0.6% -0.8%
Neurology................................... -0.6% -1.1% -1.7% -2.2%
Neurosurgery................................ -0.7% -1.4% -2.0% -2.7%
Nuclear Medicine............................ -0.3% -0.5% -0.8% -1.0%
Obstetrics/Gynecology....................... 0.0% 0.1% 0.1% 0.2%
Ophthalmology............................... -1.1% -2.2% -3.3% -4.4%
Orthopedic Surgery.......................... -0.4% -0.7% -1.1% -1.5%
Otolaryngology.............................. -0.6% -1.1% -1.7% -2.2%
Pathology................................... 1.3% 2.6% 3.9% 5.3%
Pediatrics.................................. 0.1% 0.2% 0.3% 0.5%
Physical Medicine........................... -0.5% -1.1% -1.6% -2.1%
Plastic Surgery............................. 0.1% 0.1% 0.2% 0.3%
Psychiatry.................................. 0.0% 0.1% 0.1% 0.1%
Pulmonary Disease........................... -0.2% -0.4% -0.6% -0.7%
Radiation Oncology.......................... 1.9% 3.9% 5.8% 7.9%
Radiology................................... 0.4% 0.8% 1.2% 1.7%
Rheumatology................................ -0.9% -1.8% -2.7% -3.6%
Thoracic Surgery............................ -0.8% -1.5% -2.3% -3.0%
Urology..................................... 1.8% 3.6% 5.5% 7.3%
Vascular Surgery............................ 0.5% 0.9% 1.4% 1.9%
Practitioners:
Audiologist................................. -5.8% -11.3% -16.5% -21.3%
Chiropractor................................ -1.3% -2.7% -4.0% -5.3%
Clinical Psychologist....................... -0.6% -1.1% -1.7% -2.2%
Clinical Social Worker...................... -0.6% -1.2% -1.8% -2.4%
Nurse Anesthetist........................... -0.4% -0.8% -1.2% -1.6%
Nurse Practitioner.......................... 0.1% 0.1% 0.2% 0.2%
Optometry................................... -0.8% -1.6% -2.4% -3.1%
Oral/Maxillofacial Surgery.................. 0.8% 1.6% 2.4% 3.2%
Physical/Occupational Therapy............... 1.5% 2.9% 4.4% 6.0%
Physician Assistants........................ 0.0% 0.1% 0.1% 0.2%
Podiatry.................................... 1.3% 2.6% 3.9% 5.3%
Suppliers:
Diagnostic Testing Facility................. -2.4% -4.7% -7.0% -9.2%
Independent Laboratory...................... 6.4% 13.1% 20.3% 28.0%
Portable X-Ray Supplier..................... 0.4% 0.8% 1.1% 1.5%
----------------------------------------------------------------------------------------------------------------

The table shows the effect of the proposed refinements to the PE
methodology. As described in section II.A.2. in the preamble of this
proposed rule, we are proposing to use the updated practice expense per
hour data from the accepted supplementary surveys only in the
calculation of indirect PE, and to utilize a ``bottom-up'' methodology
to calculate direct PE.
Even if no other changes were made to our PE calculation
methodology, a significant redistribution of PE RVUs would still be
produced by the acceptance of the supplementary PE surveys from seven
specialties and the corresponding increases in the direct and indirect
PE per hour for these specialties. As noted in the preamble discussion
regarding our proposal to change the PE methodology, the nonphysician
work pool was created to protect codes without physician work
components until further refinement could occur. Removing these codes
from the nonphysician work pool generally has a negative impact on
these codes (although we note that we have consistently indicated this
methodology was an interim approach until we had better data
available). In addition, the limited number of codes remaining in the
nonphysician work pool would also experience significant impacts.
Eliminating the nonphysician work pool would generally negatively
impact these codes remaining in the pool (for example, certain codes
used by audiology and portable x-ray suppliers). We believe that much
of this impact is due to the change in the scaling of the inputs when
codes move from the nonphysician work pool to the individual specialty
pool.
We believe that, in addition to the increased accuracy and
simplicity that result from using a ``bottom-up'' approach for direct
costs, this proposed approach also helps mitigate some of the
potentially inequitable redistribution of practice expense RVUs

[[Page 45861]]

resulting from the acceptance of new specialty-specific survey data.
However, several of the impacts that are shown require further
consideration.
Audiology is clearly negatively impacted when its services are
removed from the nonphysician work pool, though the impact is cut
nearly in half when the ``bottom-up'' approach is used for the direct
costs. This impact is in large part driven by the decrease in the PE
RVUs for audiology CPT codes 92557, 92567 and 92588, which we believe
may now be more appropriately priced in our proposal than they were in
the nonphysician work pool that uses historic charge-based RVUs to
determine the direct practice expense for a service. However, we would
welcome discussions with audiologists regarding this impact, so that we
can ensure that the relative costs are reflected appropriately.
Despite submitting a supplementary survey that showed higher PE
costs per hour, cardiology is shown to have an impact of -2.1 percent
in the last column of Table 30. This is largely due to the decrease in
direct PE for several high-volume services resulting from the adoption
of the ``bottom up'' approach. For example, the RVUs for the complete
electrocardiogram service, CPT code 93000, decline by 43 percent. The
RVUs for multiple 3-D heart imaging, CPT Code 78465, decline by 32
percent. However, it should be noted that, if the new survey data had
not been used to calculate indirect PE, cardiology would have had a
significantly larger (11 percent) negative impact.
Both physical/occupational therapy and independent laboratory show
significant positive impacts in the last column of 6.0 and 28.0
percent, respectively. For therapy services, we had previously applied
an adjustment that assigned all therapy services the therapy practice
expense per hour, even when billed by specialties with higher costs.
Under the top-down methodology, this adjustment was applied to both
direct and indirect costs. However, under our proposed methodology, the
practice expense per hour data would not be used to calculate direct
expenses and this would eliminate the adjustment for direct practice
expense costs.
The total CPEP/RUC dollars for supplies and equipment for the
services performed by independent laboratories are significantly higher
than the aggregate dollars shown by the recent supplementary survey for
these cost pools. Therefore, under the current top-down methodology,
the CPEP/RUC dollars are scaled down to equal the survey dollars, and
the practice expense RVUs are consequently reduced. Under our proposed
methodology, the direct costs would no longer be scaled, resulting in
higher practice expense RVUs for these services. (This also results in
a positive 5.2 percent impact for pathologists, who also perform these
services.) Although, as discussed above, we generally believe the
refined CPEP/RUC data to be more accurate for calculating direct costs
than the SMS or supplementary survey data, we are concerned that there
is such a discrepancy between the refined direct cost inputs and a
recent survey. We will want to discuss this issue with both the
specialty and the RUC to ensure that the refined CPEP/RUC data
accurately reflect the typical resources needed for these services.
However, as we indicated above, independent laboratories receive only
approximately 20 percent of their total Medicare revenues from PFS
services, and there should not be significant impact on other
specialties from this increase for independent laboratory services.
As discussed in section II.C. of this proposed rule, we are
proposing technical changes to the calculation of the malpractice RVUs.
We are proposing to remove the malpractice data for specialties that
occur less than 5 percent of the time in our data for a procedure code.
In addition, the RUC practice liability workgroup has written to us
recommending several changes to the crosswalks used to assign risk
factors to specialties for which we did not have data otherwise. We are
proposing to accept these recommendations, and, as also recommended, we
are proposing to use the lowest risk factor of 1.00 for specialties
such as clinical psychology, licensed clinical social work,
chiropractors, and physical therapists. We are also proposing to add
cardiology catheterization and angioplasty codes to the list of codes
for which we apply surgical rather than nonsurgical risk adjustment
factors. Table 31 below shows the impacts of these proposed changes.
Because the malpractice RVUs account for less than 4 percent of total
payments, the overall impacts on any particular specialty are
negligible.

TABLE 31.--Specialty Impact of Malpractice RVU Changes
----------------------------------------------------------------------------------------------------------------
Impact of
removing Impact of Combined
Speciality aberrant crosswalk impacts *
malpractice changes (percent)
data (percent) (percent)
----------------------------------------------------------------------------------------------------------------
Physicians:
Allergy/Immunology.......................................... 0.0 0.0 0.0
Anesthesiology.............................................. 0.0 0.0 -0.1
Cardiac Surgery............................................. 0.2 0.1 0.2
Cardiology.................................................. 0.0 0.1 0.1
Colon and Rectal Surgery.................................... 0.0 0.0 0.0
Critical Care............................................... 0.0 0.0 0.0
Dermatology................................................. -0.1 0.0 -0.1
Emergency Medicine.......................................... 0.0 0.0 0.0
Endocrinology............................................... 0.0 0.0 0.0
Family Practice............................................. 0.0 0.0 0.0
Gastroenterology............................................ 0.0 0.0 0.0
General Practice............................................ 0.0 0.0 0.0
General Surgery............................................. 0.0 0.0 0.1
Geriatrics.................................................. 0.0 0.0 0.0
Hand Surgery................................................ 0.1 0.0 0.1
Hematology/Oncology......................................... 0.0 0.0 0.0
Infectious Disease.......................................... 0.0 0.0 0.0
Internal Medicine........................................... 0.0 0.0 0.0
Interventional Radiology.................................... -0.1 0.0 -0.1

[[Page 45862]]

Nephrology.................................................. 0.0 0.0 0.0
Neurology................................................... 0.0 0.0 0.0
Neurosurgery................................................ 0.2 0.1 0.2
Nuclear Medicine............................................ -0.1 0.0 -0.1
Obstetrics/Gynecology....................................... 0.0 0.0 0.0
Ophthalmology............................................... 0.0 0.0 0.0
Orthopedic Surgery.......................................... 0.1 0.0 0.1
Otolaryngology.............................................. 0.0 0.0 0.0
Pathology................................................... 0.0 0.0 0.0
Pediatrics.................................................. 0.0 0.0 0.0
Physical Medicine........................................... 0.0 0.0 -0.1
Plastic Surgery............................................. 0.0 0.0 0.0
Psychiatry.................................................. 0.0 -0.1 -0.1
Pulmonary Disease........................................... 0.0 0.0 0.0
Radiation Oncology.......................................... 0.0 0.0 0.0
Radiology................................................... 0.0 0.0 0.0
Rheumatology................................................ 0.0 0.0 0.0
Thoracic Surgery............................................ 0.2 0.0 0.2
Urology..................................................... 0.0 0.0 0.0
Vascular Surgery............................................ 0.0 0.0 0.0
Practitioners:
Audiologist................................................. 0.0 0.0 0.0
Chiropractor................................................ 0.0 -0.5 -0.6
Clinical Psychologist....................................... 0.0 0.0 -0.3
Clinical Social Worker...................................... 0.0 0.0 -0.4
Nurse Anesthetist........................................... 0.0 -0.2 0.0
Nurse Practitioner.......................................... 0.0 0.0 0.0
Optometry................................................... 0.0 -0.1 0.0
Oral/Maxillofacial Surgery.................................. 0.0 0.0 0.0
Physical/Occupational Therapy............................... 0.0 0.0 -0.5
Physician Assistants........................................ 0.0 0.0 0.0
Podiatry.................................................... 0.2 0.0 0.0
Suppliers:
Diagnostic Testing Facility................................. 0.0 0.0 0.0
Independent Laboratory...................................... 0.0 0.0 0.0
Portable X-Ray Supplier..................................... 0.0 0.0 0.0
----------------------------------------------------------------------------------------------------------------
*Sum of the columns may be different due to rounding.

As discussed in section II.J. of this proposed rule, we are
proposing to reduce payments for technical components of certain
multiple imaging procedures performed in the same session within the
same imaging families. In order to calculate the impact of this
proposed change, we examined 2004 PFS carrier claims processed through
March 31, 2005. We extracted all claims that were billed on the same
day, for the same beneficiary, at the same provider, for multiple
diagnostic imaging procedures within the same family of codes. For each
subset of claims, the procedures were arrayed based on the pricing of
the technical component of these services. We simulated the effect of
the multiple procedure payment reduction by accounting for 100 percent
of the highest priced technical component, and 50 percent of all other
technical components. Note that if the procedure was billed globally,
the professional component was always calculated at 100 percent of the
professional component (modifier-26) value.
The simulated total allowed charges for each family of codes
includes all global, technical, and professional utilization for the
family of codes (for example, the sum of claims where the multiple
procedure payment reduction would have been in effect, in addition to
claims that would not have been subject to the multiple procedure
payment reduction). These simulated totals were then compared to the
actual allowed charges for each family of codes within the same time
period to calculate the impacts of the proposed change.
Table 32 below shows the actual 2004 allowed charges by family of
imaging procedures and lists the percentage impact by family if this
proposed policy had been in effect. Family 2 has the largest (-18.9
percent) impact, while Family 11 has the smallest (-1.3 percent)
impact.

Table 32.--Impact of Multiple Procedure Reduction for Diagnostic Imaging
by Family of Imaging Services
------------------------------------------------------------------------
2004
Medicare Percentage
Family Description of family of allowed impact
imaging procedures charges ($ (percent)
in millions)
------------------------------------------------------------------------
01............... Ultrasound (Chest/Abdomen/ $138 -6.8
Pelvis--Non-Obstetrical.

[[Continued on page 45863]]

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

[[pp. 45863-45912]] Medicare Program; Revisions to Payment Policies Under the
Physician Fee Schedule for Calendar Year 2006

[[Continued from page 45862]]

[[Page 45863]]

02............... CT and CTA (Chest/Thorax/ 563 -18.9
Abd/Pelvis).
03............... CT and CTA (Head/Brain/ 97 -2.6
Orbit/Maxillofacial/
Neck).
04............... MRI and MRA (Chest/Abd/ 105 -4.7
Pelvis).
05............... MRI and MRA (Head/Brain/ 532 -6.2
Neck).
06............... MRI and MRA (spine)...... 540 -4.3
07............... CT (spine)............... 24 -4.1
08............... MRI and MRA (lower 166 -3.2
extremities).
09............... CT and CTA (lower 5 -2.0
extremities).
10............... MR and MRI (upper 107 -2.7
extremities and joints).
11............... CT and CTA (upper 2 -1.3
extremities).
---------------
Total for all procedures 2,276 -8.3
subject to multiple
imaging reductions.
------------------------------------------------------------------------

Using the same data, we also summarized the dollar value of the
reductions by specialty. Specialty-specific percentage impacts were
calculated by comparing each specialty's 2004 allowed charges for all
Medicare allowed services to the reduced allowed charges that would
have occurred had this proposal been in effect. As expected, the most
significant impacts occur among radiologists, who would experience a -
2.1 percent impact. Diagnostic testing facilities experience a -2.9
percent impact. Most other specialties experience a 0.2 percent payment
increase as a result of the budget neutrality adjustment. (Because this
multiple procedure reduction adjustment would otherwise reduce overall
payments by 0.2 percent, it is necessary to include a budget neutrality
adjustment to the RVUs, resulting in positive impacts for most
specialties.) Table 33 below shows the percentage impact by specialty
in combination with other proposed changes.
Table 33 below shows the estimated change in average payments by
specialty, nonphysician practitioner, and supplier, resulting from
proposed changes to the calculation of practice expense and malpractice
RVUs, and the multiple imaging procedure discount. The first column
displays Medicare allowed charges during 2004 for each specialty,
practitioner, and supplier. The practice expense changes shown in the
second column represent the first year impact of a 4-year transition
resulting from all practice expense revisions including the adoption of
the bottom-up approach and the elimination of the nonphysician work
pool. The impact shown is identical to the first column of Table 30.
The malpractice impacts shown in the third column are identical to
those displayed above in Table 31. The fourth column in Table 33 below
demonstrates the impacts for each specialty of the proposed multiple
imaging procedure discount. The fifth column shows the combined impact
of all proposed changes by specialty.
The largest impacts in this column are attributable to the proposed
changes to the PE methodology. The final column includes the current
estimate of the 2006 PFS update factor of -4.3 percent. It also
combines the impacts of the previous three columns. In addition, this
column reflects the expiration of the transitional adjustment required
by section 303 of the MMA for drug administration services. This
adjustment was set at 32 percent for 2004 and 3 percent for 2005.
Section 1848(d) and (f) of the Act requires the Secretary to set
the PFS update under the SGR system. We are currently forecasting a
negative update of -4.3 percent for 2006 and negative updates for the
next few years. As in the past, we will include a complete discussion
of our methodology for calculating the SGR in the final rule.

Table 33.--Impact of Practice Expense, Malpractice RVUs, Multiple Imaging Discount, and Physician Fee Schedule Update on Total Medicare Allowed Charges
by Physician, Practitioner, and Supplier Subcategory
--------------------------------------------------------------------------------------------------------------------------------------------------------
Combined
Medicare Impact of impact:
allowed Impact of PE Impact of multiple Impact of all includes
Specialty charges for RVU changes malpractice imaging proposed update and
2004 ($ in (percent) RVU changes discount changes drug admin.
millions) (percent) (percent) (percent) trans.
(percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Physicians:
Allergy\Immunology.................................. $165 0.6 0.0 0.2 0.8 -3.5
Anesthesiology...................................... 1,486 -0.7 -0.1 0.2 -0.6 -4.9
Cardiac Surgery..................................... 385 -1.0 0.2 0.2 -0.5 -4.8
Cardiology.......................................... 7,219 -0.5 0.1 0.2 -0.2 -4.5
Colon and Rectal Surgery............................ 118 0.7 0.0 0.2 1.0 -3.3
Critical Care....................................... 147 -0.3 0.0 0.2 -0.1 -4.4
Dermatology......................................... 2,033 4.1 -0.1 0.2 4.2 -0.1
Emergency Medicine.................................. 1,841 -0.4 0.0 0.2 -0.2 -4.5
Endocrinology....................................... 301 -0.5 0.0 0.2 -0.3 -4.6
Family Practice..................................... 4,683 0.1 0.0 0.1 0.2 -4.1
Gastroenterology.................................... 1,710 1.4 0.0 0.1 1.5 -2.8

[[Page 45864]]

General Practice.................................... 1,023 0.2 0.0 0.1 0.2 -4.1
General Surgery..................................... 2,319 0.2 0.1 0.2 0.4 -3.9
Geriatrics.......................................... 123 -0.2 0.0 0.2 -0.1 -4.4
Hand Surgery........................................ 68 -0.5 0.1 0.2 -0.2 -4.5
Hematology\Oncology................................. 985 0.4 0.0 0.1 0.5 -5.2
Infectious Disease.................................. 410 -0.1 0.0 0.2 0.1 -4.3
Internal Medicine................................... 9,257 -0.1 0.0 0.2 0.1 -4.2
Interventional Radiology............................ 209 0.2 -0.1 -0.9 -0.8 -5.1
Nephrology.......................................... 1,507 -0.2 0.0 0.2 0.0 -4.3
Neurology........................................... 1,284 -0.6 0.0 0.0 -0.6 -4.9
Neurosurgery........................................ 538 -0.7 0.2 0.1 -0.3 -4.6
Nuclear Medicine.................................... 87 -0.3 -0.1 -0.2 -0.5 -4.8
Obstetrics\Gynecology............................... 599 0.0 0.0 0.1 0.2 -4.2
Ophthalmology....................................... 4,739 -1.1 0.0 0.2 -1.0 -5.3
Orthopedic Surgery.................................. 3,145 -0.4 0.1 0.2 -0.1 -4.4
Otolaryngology...................................... 871 -0.6 0.0 0.2 -0.4 -4.7
Pathology........................................... 915 1.3 0.0 0.2 1.5 -2.8
Pediatrics.......................................... 66 0.1 0.0 0.2 0.3 -4.1
Physical Medicine................................... 750 -0.5 -0.1 0.2 -0.4 -4.7
Plastic Surgery..................................... 279 0.1 0.0 0.2 0.3 -4.0
Psychiatry.......................................... 1,127 0.0 -0.1 0.2 0.1 -4.2
Pulmonary Disease................................... 1,521 -0.2 0.0 0.2 0.0 -4.3
Radiation Oncology.................................. 1,308 1.9 0.0 0.1 2.0 -2.3
Radiology........................................... 5,154 0.4 0.0 -2.1 -1.7 -6.0
Rheumatology........................................ 400 -0.9 0.0 0.1 -0.8 -5.4
Thoracic Surgery.................................... 464 -0.8 0.2 0.2 -0.4 -4.7
Urology............................................. 1,782 1.8 0.0 0.0 1.8 -2.6
Vascular Surgery.................................... 560 0.5 0.0 0.2 0.7 -3.6
Practitioners:
Audiologist......................................... 31 -5.8 0.0 0.2 -5.6 -9.9
Chiropractor........................................ 720 -1.3 -0.6 0.2 -1.8 -6.1
Clinical Psychologist............................... 527 -0.6 -0.3 0.2 -0.6 -4.9
Clinical Social Worker.............................. 345 -0.6 -0.4 0.2 -0.8 -5.1
Nurse Anesthetist................................... 523 -0.4 0.0 0.2 -0.2 -4.5
Nurse Practitioner.................................. 617 0.1 0.0 0.2 0.2 -4.1
Optometry........................................... 720 -0.8 0.0 0.2 -0.6 -4.9
Oral\Maxillofacial Surgery.......................... 37 0.8 0.0 0.2 1.0 -3.3
Physical\Occupational Therapy....................... 1,283 1.5 -0.5 0.2 1.2 -3.1
Physicians Assistant................................ 472 0.0 0.0 0.2 0.3 -4.0
Podiatry............................................ 1,487 1.3 0.0 0.2 1.5 -2.8
Suppliers:
Diagnostic Testing Facility......................... 1,087 -2.4 0.0 -2.9 -5.3 -9.6
Independent Laboratory.............................. 631 6.4 0.0 0.2 6.6 2.3
Portable X-Ray Supplier............................. 96 0.4 0.0 0.1 0.5 -3.8
--------------------------------------------------------------------------------------------------------------------------------------------------------

Table 34 below shows the impact on total payments for selected
high-volume procedures of all of the changes previously discussed. We
selected these procedures because they are the most commonly provided
by a broad spectrum of physician specialties. There are separate
columns that show the change in the facility rates and the nonfacility
rates. For an explanation of facility and nonfacility practice expense
refer to section II.A. in the preamble of this proposed rule. If we
change any of the proposed provisions following the consideration of
public comments, these figures may change.

Table 34.--Impact of Proposed Rule on Payment for Selected Procedures
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-facility Facility
------------------------------------------------------------------
HCPCS MOD Description Percent Percent
Old New change Old New change
--------------------------------------------------------------------------------------------------------------------------------------------------------
11721................................... ......... Debride nail, 6 or more......... $39.79 $38.77 -3 $31.08 $29.60 -5
17000................................... ......... Destroy benign/premlg lesion.... 60.64 62.54 3 44.34 44.39 0
27130................................... ......... Total hip arthroplasty.......... N/A N/A N/A 1,396.14 1,321.88 -5

[[Page 45865]]

27244................................... ......... Treat thigh fracture............ N/A N/A N/A 1,134.65 1,073.62 -5
27447................................... ......... Total knee arthroplasty......... N/A N/A N/A 1,507.94 1,427.92 -5
33533................................... ......... CABG, arterial, single.......... N/A N/A N/A 1,923.30 1,813.54 -6
35301................................... ......... Rechanneling of artery.......... N/A N/A N/A 1,128.59 1,072.23 -5
43239................................... ......... Upper GI endoscopy, biopsy...... 333.50 336.27 1 162.20 159.18 -2
66821................................... ......... After cataract laser surgery.... 248.23 233.25 -6 230.42 216.83 -6
66984................................... ......... Cataract surg w/iol, 1 stage.... N/A N/A N/A 684.05 649.50 -5
67210................................... ......... Treatment of retinal lesion..... 599.54 568.15 -5 573.39 544.48 -5
71010................................... ......... Chest x-ray..................... 28.04 25.68 -8 N/A N/A N/A
71010................................... 26 Chest x-ray..................... 9.47 9.17 -3 9.47 9.17 -3
76091................................... ......... Mammogram, both breasts......... 97.40 101.39 4 N/A N/A N/A
76091................................... 26 Mammogram, both breasts......... 45.10 43.77 -3 45.10 43.77 -3
76092................................... ......... Mammogram, screening............ 85.65 83.77 -2 N/A N/A N/A
76092................................... 26 Mammogram, screening............ 36.38 35.33 -3 36.38 35.33 -3
77427................................... ......... Radiation tx management, x5..... 172.05 168.64 -2 172.05 166.10 -3
78465................................... 26 Heart image (3d), multiple...... 77.31 74.92 -3 77.31 74.92 -3
88305................................... 26 Tissue exam by pathologist...... 42.07 40.14 -5 42.07 40.14 -5
90801................................... ......... Psy dx interview................ 153.11 147.29 -4 144.01 137.12 -5
90862................................... ......... Medication management........... 51.92 50.31 -3 48.89 46.77 -4
90935................................... ......... Hemodialysis, one evaluation.... N/A N/A N/A 73.14 69.37 -5
92012................................... ......... Eye exam established pat........ 65.18 61.63 -5 37.14 35.32 -5
92014................................... ......... Eye exam & treatment............ 96.26 91.31 -5 60.64 57.66 -5
92980................................... ......... Insert intracoronary stent...... N/A N/A N/A 809.11 786.38 -3
93000................................... ......... Electrocardiogram, complete..... 26.91 24.23 -10 N/A N/A N/A
93010................................... ......... Electrocardiogram report........ 9.10 8.81 -3 9.10 8.81 -3
93015................................... ......... Cardiovascular stress test...... 108.01 107.55 0 N/A N/A N/A
93307................................... 26 Echo exam of heart.............. 49.27 47.67 -3 49.27 47.67 -3
93510................................... 26 Left heart catheterization...... 257.32 252.61 -2 257.32 252.61 -2
98941................................... ......... Chiropractic manipulation....... 36.76 34.78 -5 31.83 30.42 -4
99203................................... ......... Office/outpatient visit, new.... 97.02 93.33 -4 72.38 69.11 -5
99213................................... ......... Office/outpatient visit, est.... 52.68 50.65 -4 35.62 33.96 -5
99214................................... ......... Office/outpatient visit, est.... 82.62 79.62 -4 59.12 56.30 -5
99222................................... ......... Initial hospital care........... N/A N/A N/A 112.93 107.79 -5
99223................................... ......... Initial hospital care........... N/A N/A N/A 157.27 150.29 -4
99231................................... ......... Subsequent hospital care........ N/A N/A N/A 34.11 32.60 -4
99232................................... ......... Subsequent hospital care........ N/A N/A N/A 55.71 53.31 -4
99233................................... ......... Subsequent hospital care........ N/A N/A N/A 79.21 75.74 -4
99236................................... ......... Observ/hosp same date........... N/A N/A N/A 223.22 213.40 -4
99239................................... ......... Hospital discharge day.......... N/A N/A N/A 96.64 92.53 -4
99243................................... ......... Office consultation............. 122.79 118.66 -3 93.99 90.08 -4
99244................................... ......... Office consultation............. 172.81 166.69 -4 138.70 133.04 -4
99253................................... ......... Initial inpatient consult....... N/A N/A N/A 98.91 94.99 -4
99254................................... ......... Initial inpatient consult....... N/A N/A N/A 142.12 136.30 -4
99261................................... ......... Follow-up inpatient consult..... N/A N/A N/A 22.36 21.43 -4
99262................................... ......... Follow-up inpatient consult..... N/A N/A N/A 45.48 43.50 -4
99263................................... ......... Follow-up inpatient consult..... N/A N/A N/A 67.46 64.57 -4
99283................................... ......... Emergency dept visit............ N/A N/A N/A 62.15 59.30 -5
99284................................... ......... Emergency dept visit............ N/A N/A N/A 97.02 92.54 -5
99291................................... ......... Critical care, first hour....... 256.57 243.87 -5 207.68 198.33 -4
99292................................... ......... Critical care, addï'l 30 min 113.69 108.60 -4 103.84 99.17 -4
99302................................... ......... Nursing facility care........... 87.92 84.00 -4 87.92 84.00 -4
99303................................... ......... Nursing facility care........... 108.39 103.43 -5 108.39 103.43 -5
99312................................... ......... Nursing fac care, subseq........ 56.47 54.03 -4 56.47 54.03 -4
99313................................... ......... Nursing fac care, subseq........ 79.58 76.18 -4 79.58 76.18 -4
99348................................... ......... Home visit, est patient......... 72.01 68.65 -5 N/A N/A N/A
99350................................... ......... Home visit, est patient......... 164.48 156.46 -5 N/A N/A N/A
G0008................................... ......... Immunization admin.............. 18.57 17.88 -4 N/A N/A N/A
G0317................................... ......... ESRD related svs 4+mo 20+yrs.... 307.73 294.91 -4 307.73 294.91 -4
G0344................................... ......... Initial preventive exam......... 97.40 93.69 -4 72.76 69.47 -5
G0366................................... ......... EKG for initial prevent exam.... 26.91 24.23 -10 N/A N/A N/A
G0367................................... ......... EKG tracing for initial prev.... 17.81 15.42 -13 N/A N/A N/A
G0368................................... ......... EKG interpret & report preve.... 9.10 8.81 -3 9.10 8.81 -3
--------------------------------------------------------------------------------------------------------------------------------------------------------

In the November 15, 2004 PFS final rule, we showed the combined
impact of PFS and drug payment changes on the total revenues for
specialties that perform a significant volume of drug administration
services. (69 FR 66406) Although we have not performed a similar
combined impact analysis this year for all of the specialties
considered

[[Page 45866]]

last year, we have undertaken a similar analysis of hematology/
oncology. In last year's final rule, we announced a one-year
demonstration to collect information about symptoms for cancer patients
receiving chemotherapy (69 FR 66308). Although this demonstration was
implemented through the Secretary's authority under sections
402(a)(1)(B) and 402(a)(2) of the Social Security Act Amendments of
1967 (Pub. L. 90-248) and not through administrative rulemaking, we
discussed the impacts of the additional payments from this
demonstration in last year's final rule impact analysis.
Therefore, we are also including an analysis of the impact on
payments to hematology/oncology as this demonstration project ends. As
indicated in Table 35 below, PFS services account for approximately 28
percent of Medicare revenues for hematology/oncology. Medicare payments
for all PFS services provided by the specialties of hematology/oncology
are projected to decrease by 5.2 percent for 2006. We estimate the
impact of the one-year demonstration was 15 percent higher payments
relative to PFS payments during 2005. We estimate that approximately 69
percent of total Medicare revenues for hematology/oncology are
attributed to drugs, and, for purposes of this analysis, we are
assuming no change in the payment levels for Part B drugs during 2006.
Assuming no changes in utilization for 2006, we project total Medicare
revenues to oncologists would decline by 5.6 percent. However, if the
volume of drugs and PFS services increased at historical rates, total
Medicare revenues for hematology/oncology would increase by 8.1 percent
between 2005 and 2006.

Table 35--Impact of Drug and Physician Fee Schedule Payment Changes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Physician Fee Schedule Drugs All Revenues
--------------------------------------------------------------------------------------------------------------------------------------------------------
Change Combined
Percent of medicare Change one- Percent of Change Combined percent change
total medicare physician fee year total medicare medicare drug percent change all medicare
Specialty revenues from schedule demonstration revenues from revenues all medicare revenues with
fee schedule revenues project drugs (percent) revenues* utilization
(percent) (percent) (percent) increase**
--------------------------------------------------------------------------------------------------------------------------------------------------------
Hematology/Oncology..................... 28 -5.2 -15 69 0 -5.6 8.1%
--------------------------------------------------------------------------------------------------------------------------------------------------------
*Note: Reflects changes in total Medicare revenues assuming no changes in utilization. Calculation reflects average changes in fee schedule payments and
for drugs weighted by percent of Medicare revenues.
** Note: We estimate that Medicare payments to oncologists would increase by 8% between 2005 and 2006 if growth in the volume of drugs and physician fee
schedule services were to grow at historical rates, despite the effect of the end of the one-year demonstration project.

B. Geographic Practice Cost Indices (GPCI)--Payment Localities

As discussed in section II.B. of the preamble to this proposed
rule, we are proposing two changes to the California GPCI payment
localities. We are proposing to remove both Santa Cruz County and
Sonoma County from the Rest of California payment locality, and make
both of those counties separate payment localities.
In the November 15, 2004 final rule, we published 2005 and 2006
GPCI and GAF values reflecting the 2 year phase-in of the updated GPCI
data. For the Rest of California payment locality that included Santa
Cruz and Sonoma counties, the 2005 GAF is 1.012, and the 2006 GAF
published at that time was 1.017. After removing Santa Cruz County from
the Rest of California locality, its proposed 2006 GAF increases to
1.119. Removing Sonoma County from the Rest of California locality
results in a proposed 2006 GAF of 1.098 for the new Sonoma County
payment locality. The Rest of California proposed 2006 GAF is 1.011.
Table 36 below shows the impacts of the proposed changes in the GPCIs
and GAFs. Although only Santa Cruz and Sonoma Counties and the Rest of
California locality are specifically impacted by the proposed change,
in Table 36, we are showing the GPCIs and GAFs for all California
payment localities (the changes from the 2005 to 2006 GAFs for these
counties represent the second year of the transition to updated GPCIs).

[[Page 45867]]

Table 36.--Impacts on California Payment Localities
--------------------------------------------------------------------------------------------------------------------------------------------------------
2005 GPCI 2006 Proposed GPCI Percent
---------------------- -------------------------------------------- change
Locality name County Work GPCI GAF from 2005
PE GPCI MP GPCI Work GPCI PE GPCI MP GPCI GAF GAFs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Anaheim\Santa Ana............... Orange............. 1.036 1.21 0.954 1.109 1.034 1.236 0.954 1.119 0.9
Los Angeles..................... Los Angeles........ 1.049 1.147 0.954 1.088 1.041 1.156 0.954 1.088 0.0
Marin\Napa\Solano............... Marin, Napa, Solano 1.025 1.294 0.651 1.128 1.035 1.34 0.651 1.154 2.3
Oakland\Berkley................. Alameda, Contra 1.048 1.303 0.651 1.144 1.054 1.371 0.651 1.177 2.9
Costa.
San Francisco................... San Francisco...... 1.064 1.501 0.651 1.239 1.06 1.543 0.651 1.256 1.4
San Mateo....................... San Mateo.......... 1.061 1.484 0.639 1.23 1.073 1.536 0.639 1.259 2.4
Santa Clara..................... Santa Clara........ 1.073 1.46 0.604 1.224 1.083 1.54 0.604 1.265 3.3
Santa Cruz...................... Santa Cruz......... 1.007 1.043 0.733 1.012 1.014 1.218 0.717 1.119 10.6
Sonoma.......................... Sonoma............. 1.007 1.043 0.733 1.012 1.017 1.23 0.717 1.098 8.5
Ventura......................... Ventura............ 1.028 1.152 0.744 1.072 1.028 1.179 0.744 1.083 1.0
Rest of California*............. ................... 1.007 1.043 0.733 1.012 1.007 1.042 0.717 1.011 -0.1%
--------------------------------------------------------------------------------------------------------------------------------------------------------
*Alpine, Amador, Butte, Calaveras, Colusa, Del Norte, El Dorado, Fresno, Glenn, Humboldt, Imperial, Inyo, Kern, Kings, Lake, Lassen, Madera, Mariposa,
Mendocino, Merced, Modoc, Mono, Monterey, Nevada, Placer, Plumas, Riverside, Sacramento, San Benito, San Bernardino, San Joaquin, San Diego, San Luis
Obispo, Santa Barbara, Shasta, Sierra, Siskiyou, Stanislaus, Sutter, Tehama, Trinity, Tulare, Tuolumne, Yolo, Yuba

[[Page 45868]]

C. Medicare Telehealth Services

In section II.D. of this proposed rule, we are proposing to add
individual medical nutrition therapy, as represented by HCPCS codes
G0270, 97802, and 97803, to the list of telehealth services. We believe
that this change will have little effect on Medicare expenditures.

D. Contractor Pricing of CPT Codes 97039 and 97139

As discussed earlier in the preamble of this proposed rule (section
II.E.), we are proposing to have the contractors value CPT codes 97039
and 97139. This will make the pricing methodology for these services
consistent with our policy for other unlisted services and we believe
it will have no significant impact on Medicare expenditures.

E. ESRD-MMA Related Provisions

The ESRD related provisions in this proposed rule are discussed in
section II.G. In order to understand the impact of the proposed changes
affecting payments to different categories of ESRD facilities, it is
necessary to compare estimated payments under the current payment
system (current payments) to estimated payments under the proposed
revisions to the composite rate payment system as set forth in this
proposed rule (proposed payments). To estimate the impact among various
classes of ESRD facilities, it is imperative that the estimates of
current payments and proposed payments contain similar inputs.
Therefore, we simulated payments only for those ESRD facilities for
which we are able to calculate both current 2005 payments and proposed
2006 payments.
Due to data limitations, we are unable to estimate current and
proposed payments for 77 facilities that bill for ESRD dialysis
treatments. ESRD providers were grouped into the categories based on
characteristics provided in the Online Survey and Certification and
Reporting (OSCAR) file and the most recent cost report data from the
Healthcare Cost Report Information System (HCRIS). We also used the
December 2004 update of CY 2004 Standard Analytical File (SAF) claims
as a basis for Medicare dialysis treatments and separately billable
drugs and biologicals. While the December 2004 update of the 2004 SAF
file is not complete, we wanted to use the most recent data available,
and plan to use an updated version of the 2004 SAF file for the final
rule.

Table 37--Impact of Proposed Changes in Payments to Hospital Based and Independent ESRD Facilities (Includes
Drug and Composite Rate Payments)
[Percent change in total payments to ESRD facilities (both program and beneficiaries)]
----------------------------------------------------------------------------------------------------------------
Number of Effect of
Number of Dialysis Effect of changes in Overall effect
facilities treatments changes in drug \3\
(in millions) wage index\1\ payments\2\
----------------------------------------------------------------------------------------------------------------
All............................. 4,293 29.5 0.0 1.2 0.5
Independent..................... 3,716 26.1 -0.1 1.2 0.4
Hospital Based.................. 577 3.3 1.3 1.0 1.2
Size:
Small < than 5000 treatments 1,714 4.9 -0.5 1.1 0.1
per year...................
Medium 5000 to 9999 1,724 12.4 0.1 1.3 0.6
treatments per year........
Large > than 10000 855 12.1 0.2 1.2 0.6
treatments per year........
Type of Ownership:
Profit...................... 3,388 23.8 -0.2 1.2 0.4
Nonprofit................... 896 5.6 1.0 1.1 1.0
Rural....................... 1,189 6.0 -0.6 1.1 0.1
Urban....................... 3,104 23.5 0.2 1.2 0.6
Region:
New England................. 143 1.1 3.7 1.6 2.9
Middle Atlantic............. 521 3.9 2.1 1.5 1.9
East North Central.......... 651 4.6 -1.9 0.9 -0.8
West North Central.......... 333 1.6 -0.9 1.0 -0.2
South Atlantic.............. 975 6.8 -0.3 1.2 0.4
East South Central.......... 342 2.2 -1.6 1.1 -0.4
West South Central.......... 585 4.1 -1.3 1.1 -0.3
Mountain.................... 226 1.3 -0.6 1.1 0.0
Pacific..................... 486 3.7 2.6 1.5 2.2
Puerto Rico................. 31 0.3 -1.6 0.7 -0.7
----------------------------------------------------------------------------------------------------------------
\1\ This column shows the effect of wage changes to composite rate payments to ESRD providers. Composite rate
payments computed using the current wage index are compared to composite rate payments using the proposed wage
index changes.
\2\ This column shows the effect of the changes in drug payments to ESRD providers. These include proposed
changes In payment for separately billable drugs (2006 ASP+6) and the 8.9% drug add-on compared to current
payment for separately billable drugs (2005 AAP) and the current 8.7 percent drug add-on.
\3\ This column shows the percent change between proposed and current payments to ESRD facilities. The proposed
payments include the wage adjusted composite rate, and the 8.9% drug add-on times treatments plus proposed
payment for separately billable drugs. The current payment to ESRD facilities includes the current wage
adjusted composite rate times treatments plus current drug payments for separately billable drugs.

Table 37 above shows the impact of this year's proposed changes to
payments to hospital based and independent ESRD facilities. We have
included both composite rate payments as well as payments for
separately billable drugs and biologicals because both are affected by
the proposed changes. The first column of Table 37 identifies the type
of ESRD provider, the second column indicates the number of ESRD
facilities for each type, and the third column indicates the number of
dialysis treatments.
The fourth column shows the effect of proposed changes to the ESRD
wage index as it affects the composite rate payments to ESRD
facilities. The fourth

[[Page 45869]]

column compares aggregate wage adjusted composite rate payments using
the proposed ESRD wage index compared to the current ESRD wage adjusted
composite rate payments. The overall effect to all ESRD providers in
aggregate is zero because the proposed ESRD wage index has been
multiplied by a budget neutrality factor to comply with the statutory
requirement that any wage index revisions be done in a manner that
results in the same aggregate amount of expenditures as would have been
made without any changes in the wage index. The percent changes shown
in the fifth and sixth columns are the result of the increase to the
drug add-on and the changes in drug prices which are explained in
section G below.
The fifth column shows the effect of the proposed changes in drug
payments to ESRD providers. Current payments for drugs represent 2005
Medicare reimbursement using AAP prices for the top ten drugs (as
discussed earlier in this preamble). Current Medicare spending for the
top ten drugs is estimated using 2005 AAP prices times actual drug
utilization from 2004 claims. (EPO units are estimated using payments
because the units field on bills represents the number of EPO
administrations rather than the number of EPO units). Spending under
the proposed change is 2005 ASP +6 percent for the top ten drugs times
actual drug utilization from 2004 claims. The proposed prices for these
top ten drugs are discussed earlier in this preamble. In order to
simulate what ASP +6 percent pricing will be in 2006 we inflated the
2005 first quarter ASP +6 prices by a forecast of the PPI for
prescription drugs (5.7 percent annual growth from 2005 to 2006).
Proposed payment for drugs in 2006 also includes the 8.9 percent
drug add-on to the composite rate. This amount is computed by
multiplying the wage adjusted composite rate for each provider times
dialysis treatments from 2004 claims. Column 5 is computed by comparing
spending under the proposed payment for drugs (ASP +6 percent inflated
to 2006) including the 8.9 percent drug add-on amount to spending under
current payments for drugs with the current drug add-on of 8.7 percent.
In order to make column 5 comparable with rest of Table 38, current
composite rate payments to ESRD facilities were included in both
current and proposed spending calculations.
We did not simulate any case mix in this impact table because 2004
claims data do not include the new data fields (height and weight) that
are needed to calculate case mix. These data fields were not required
be reported by providers until January 1, 2005. However, we have not
proposed any changes to case mix for calendar year 2006.
Column 6 shows the overall effect of all changes in drug and
composite rate payments to ESRD providers. The overall effect is
measured as the difference between proposed payment with all MMA
changes as proposed in this rule and current payment. Proposed payment
is computed by multiplying the composite rate for each provider (with
both the proposed wage index and the 8.9 percent drug add-on) times
dialysis treatments from 2004. In addition, the proposed payment
includes payments for separately billable drugs under the ASP +6 drug
pricing inflated to 2006 levels. Current payment is the current wage
adjusted composite rate for each provider times dialysis treatments
from 2004 claims plus current AAP priced drug payments for separately
billable drugs with the current 8.7 percent drug add-on.
The overall impact to ESRD providers in aggregate is 0.5 percent.
Among the two separately shown effects, the effect of changes to the
wage index has the most variation among provider type but is budget
neutral in aggregate. The effect of change in drug payments contributes
most to the overall effect, but varies little among provider types.
We also note that the proposed revisions to the composite rate
exceptions process will have no impact on payments to ESRD providers
since we have only proposed changes in process and these changes do not
affect which providers will be eligible for exceptions nor the amount
of the exception.

F. Payment for Covered Outpatient Drugs and Biologicals

As discussed in section II.H. of this proposed rule, the proposal
to pay a reduced supplying fee for each Medicare Part B oral drug
prescription, after the first one, supplied to a beneficiary during a
month is estimated to reduce total Federal expenditures by $8 million
in 2006, and $30 million over the five-year period, CY 2006 to 2010.
The preamble seeks comment on an appropriate inhalation drug dispensing
fee amount for 2006. The effect on Federal expenditures of a potential
change to the inhalation drug dispensing fee would depend on the
dispensing fee amount established.

G. Private Contracts and Opt-Out Provision

The changes discussed in section II.I. of this proposed rule, with
respect to private contracts and the opt-out provision, are currently
estimated to have no significant impact on Medicare expenditures.
However, we believe the changes will clarify that the consequences for
the failure to maintain opt-out will apply regardless of whether the
physician or practitioner was notified by the carrier.

H. FQHC Supplemental Payment Provision

Section 237 of the MMA amended section 1833(a)(3) of Act to provide
supplemental payments to FQHCs that contract with Medicare Advantage
(MA) organizations to cover the difference, if any, between the payment
received by the health center for treating MA enrollees and the payment
to which the FQHC would be entitled to receive under its cost-based
all-inclusive payment rate. We estimate that this new MMA payment
provision for FQHC services will not increase Medicare payments. In
other words, this MMA provision would have no budgetary impact on the
Medicare trust fund due to the fact that a supplemental payment would
only be made when the MA payment to the health center is less than its
original FQHC cost based rate. Consequently, no additional Medicare
expenditures would be needed to pay the center up to what it would have
received under original Medicare.

I. National Coverage Decisions Timeframes

The proposed changes to Sec. 426.340 discussed in section II.N. of
this proposed rule, are made in order to conform certain timeframes in
the regulation to meet legislative changes made by the MMA of 2003.
These changes to the regulation will meet Congressional intent in the
development of NCDs, and will conform the regulation to the overall NCD
process. There will be no budget implications as a result of these
changes.

J. Coverage of Screening for Glaucoma

As discussed in section II.O. of the preamble to this proposed
rule, we would expand the definition of an eligible beneficiary under
the glaucoma screening benefit to include Hispanic Americans age 65 and
over, effective January 1, 2006, subject to certain frequency and other
limitations on coverage. At present, Sec. 410.23(a)(2) (Conditions for
and limitations on coverage of screening for glaucoma) defines the term
``eligible beneficiary''

[[Page 45870]]

to include individuals in the following high risk categories:
Individual with diabetes mellitus.
Individual with a family history of glaucoma.
African-Americans age 50 and over.
Based on the projected utilization of these screening services and
related medically necessary follow-up tests and treatment that may be
required for the additional beneficiaries screened, we estimate that
this expanded benefit will result in an increase in Medicare payments
to ophthalmologists or optometrists who will provide these screening
tests and related follow-up tests and treatment. However, this is not
expected to have a significant cost impact on the Medicare program.

K. Physician Referral for Nuclear Medicine Services

This proposal, which is discussed in section II.P. of this proposed
rule, would primarily affect physicians and health care entities that
furnish items and services to Medicare beneficiaries. We have attempted
to minimize its effect by interpreting the law in a practical and
realistic manner. We are unable to quantify the number of physicians
who have either an ownership or an investment interest in entities that
furnish nuclear medicine services and/or supplies. Even if we assume
that a substantial number of physicians have ownership or investment
interests in these types of entities, we believe that, in general, the
economic impact on these physicians would not necessarily be
substantial, for the reasons stated below.
Physician owners/investors of entities that furnish nuclear
medicine services and supplies in a manner that satisfies the
requirements of the in-office ancillary services exception would not be
affected by this proposed rule. In addition, physician ownership of or
investment in entities that furnish nuclear medicine services and
supplies to residents of rural areas would not be affected by this
requirement.
If a physician's ownership or investment interest would lead to a
prohibition on his or her referrals to that entity, the physician has
two options. First, he or she can stop making referrals to that entity
and make referrals to another entity. Second, the physician can divest
himself or herself of the interest. While the impact on an individual
physician may be significant, we do not believe that physicians, in
general, will be significantly affected if they have to stop making
referrals to an entity in which they have an ownership interest. We
have come to this conclusion because we assume that the majority of
physicians receive most of their income from the services they
personally furnish, not from nuclear medicine services performed by
entities that they own. In addition, we assume that, unless the
physician established the entity to serve only his or her patients, the
entity receives referrals from other physicians. Thus, the physician
may still receive a return on the ownership or investment. We do not
believe that the second option (divestiture of the ownership interest)
would necessarily have a significant economic effect. However, we
assume, that, at least from an economic standpoint, most physicians
invest in entities because they are income producing. If an investment
is successful, a physician may have little difficulty finding new
investors willing to take over the physician's investment. The
physician, in turn, can then invest the monies received in some other
investment. We believe the cost of divestiture will vary from situation
to situation.
We also do not believe that beneficiary access to medically
necessary nuclear medicine services would be threatened simply because
most physician ownership of entities that furnish nuclear medicine
services would be prohibited. As indicated above, we see no reason why
medically necessary nuclear medicine services could not be furnished by
entities owned by those not in a position to refer such services.
We expect that this proposed rule may result in savings to both the
Medicare and Medicaid programs by minimizing anti-competitive business
arrangements as well as financial incentives that encourage over-
utilization of costly nuclear medicine services. (See David Armstrong,
``MRI and CT Centers Offer Doctors Way to Profit on Scans,'' Wall
Street Journal, May 2, 2005, et al.) We cannot gauge with any certainty
the extent of these savings to either program at this time.

L. Alternatives Considered

This proposed rule contains a range of policies, including some
proposals related to specific MMA provisions. The preamble provides
descriptions of the statutory provisions that are addressed, identifies
those policies when discretion has been exercised, presents rationale
for our decisions and, where relevant, alternatives that were
considered.

M. Impact on Beneficiaries

There are a number of changes made in this proposed rule that would
have an effect on beneficiaries. In general, we believe these changes
will improve beneficiary access to services that are currently covered
or will expand the Medicare benefit package to include new services. As
explained in more detail below, the regulatory provisions may affect
beneficiary liability in some cases. Any changes in aggregate
beneficiary liability from a particular provision will be a function of
the coinsurance (20 percent if applicable for the particular provision
after the beneficiary has met the deductible) and the effect of the
aggregate cost (savings) of the provision on the calculation of the
Medicare Part B premium rate (generally 25 percent of the provision's
cost or savings).
To illustrate this point, as shown in Table 34, the 2005 national
payment amount in the nonfacility setting for CPT code 99203 (Office/
outpatient visit, new), is $97.02 which means that currently a
beneficiary is responsible for 20 percent of this amount, or $19.40.
Under this proposed rule the 2006 national payment amount in the
nonfacility setting for CPT code 99203, as shown in Table 34, is $93.33
which means that, in 2006, the beneficiary coinsurance for this service
would be $18.66.
Very few of the changes we are proposing impact overall payments
and therefore will affect Medicare beneficiaries' coinsurance
liability. Proposals discussed above that do affect overall spending
would similarly impact beneficiaries' coinsurance.
For example, we have tried to ensure that the proposal concerning
physician self-referral for nuclear medicine services would not
adversely impact the medical care of Medicare or Medicaid patients.
While we recognize that these proposed revisions may have an impact on
current arrangements under which patients are receiving medical care,
there are other ways to structure these arrangements so that patients
may continue to receive medically necessary nuclear medicine services.
In almost all cases, we believe this proposal concerning physician
referral for nuclear medicine services should not require substantial
changes in delivery arrangements and would help minimize anti-
competitive behavior that can affect where a beneficiary receives
health care services and possibly the quality of the services
furnished. We also believe it will minimize the number of medically
unnecessary nuclear medicine procedures billed to the Medicare and
Medicaid programs.

N. Accounting Statement

As required by OMB Circular A-4 (available at http://www.

whitehouse. gov/omb/ circulars/ a004/a -4. pdf), in

[[Page 45871]]

Table 38 below, we have prepared an accounting statement showing the
classification of the expenditures associated with the provisions of
this proposed rule. This table includes the impact of the proposed
changes in this rule on providers and suppliers and encompasses the
anticipated negative update to the physician fee schedule based on the
statutory SGR formula.
Expenditures are classified as transfers to Medicare providers/or
suppliers (that is, ESRD facilities and physicians, other practitioners
and medical suppliers that receive payment under the physician fee
schedule or Medicare Part B).

TABLE 38.--Accounting Statement: Classification of Estimated
Expenditures, From CY 2005 to the CY 2006
[in millions]
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Negative transfer-Estimated decrease in
Transfers. expenditures ($1,860).
From Whom To Whom?........... Federal Government To ESRD Medicare
Providers; physicians, other
practitioners and suppliers who receive
payment under the Medicare Physician Fee
Schedule; and Medicare Suppliers billing
for Part B drugs.
------------------------------------------------------------------------

In accordance with the provisions of Executive Order 12866, this
final rule was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 405

Administrative practice and procedure, Health facilities, Health
professions, Kidney diseases, Medical devices, Medicare, Reporting and
recordkeeping requirements, Rural areas, X-rays.

42 CFR Part 410

Health facilities, Health professions, Kidney diseases,
Laboratories, Medicare, Reporting and recordkeeping requirements, Rural
areas, X-rays.

42 CFR Part 411

Kidney diseases, Medicare, Physician Referral, Reporting and
recordkeeping requirements.

42 CFR Part 413

Health facilities, Kidney diseases, Medicare, Reporting and
recordkeeping requirements.

42 CFR Part 414

Administrative practice and procedure, Health facilities, Health
professions, Kidney diseases, Medicare, Reporting and recordkeeping
requirements.

42 CFR Part 426

Administrative practice and procedure, Medicare, Reporting and
recordkeeping requirements.
For the reasons set forth in the preamble, the Centers for Medicare
& Medicaid Services proposes to amend 42 CFR chapter IV as set forth
below:

PART 405--FEDERAL HEALTH INSURANCE FOR THE AGED AND DISABLED

1. The authority citation for part 405 continues to read as
follows:

Authority: Secs. 1102, 1861, 1862(a), 1871, 1874, 1881, and
1886(k) of the Social Security Act (42 U.S.C. 1302, 1395x, 1395y(a),
1395hh, 1395kk, 1395rr, and 1395ww(k)), and sec. 353 of the Public
Health Service Act (42 U.S.C. 263a).

Subpart D--Private Contracts

2. Section 405.435 is amended by--
A. Revising introductory text in paragraph (b).
B. Adding paragraph (d).
The revision and addition read as follows:

Sec. 405.435 Failure to maintain opt-out.

* * * * *
(b) If a physician or practitioner fails to maintain opt-out in
accordance with paragraph (a) of this section, then, for the remainder
of the opt-out period, except as provided by paragraph (d) of this
section--
* * * * *
(d) If a physician or practitioner demonstrates that he or she has
taken good faith efforts to maintain opt-out (including by refunding
amounts in excess of the charge limits to beneficiaries with whom he or
she did not sign a private contract) within 45 days of a notice from
the carrier of a violation of paragraph (a) of this section, then the
requirements of paragraphs (b)(1) through (b)(8) of this section are
not applicable. In situations where a violation of paragraph (a) of
this section is not discovered by the carrier during the 2-year opt-out
period when the violation actually occurred, then the requirements of
paragraphs (b)(1) through (b)(8) of this section are applicable from
the date that the first violation of paragraph (a) of this section
occurred until the end of the opt-out period during which the violation
occurred (unless the physician or practitioner takes good faith
efforts, within 45 days of any notice from the carrier that the
physician or practitioner failed to maintain opt-out, or the
physician's or practitioner's discovery of the failure to maintain opt-
out, whichever is earlier, to correct his or her violations of
paragraph (a) of this section, for example, by refunding the amounts in
excess of the charge limits to beneficiaries with whom he or she did
not sign a private contract).
* * * * *

Subpart X--Rural Health Clinic and Federally Qualified Health
Center Services

3. Add Sec. 405.2469 to read as follows:

Sec. 405.2469 Federally Qualified Health Centers supplemental
payments.

Federally Qualified Health Centers under contract (directly or
indirectly) with Medicare Advantage plans are eligible for supplemental
payments for covered Federally Qualified Health Center services
furnished to enrollees in Medicare Advantage plans offered by the
Medicare Advantage organization to cover the difference, if any,
between their payments from the Medicare Advantage plan and what they
would receive under the cost-based Federally Qualified Health Center
payment system.
(a) Calculation of supplemental payment. (1) The supplemental
payment for Federally Qualified Health Center covered services provided
to Medicare patients enrolled in Medicare Advantage plans is based on--
(i) The difference between payments received by the center from the
Medicare Advantage plan as determined on a per visit basis;

[[Page 45872]]

(ii) The Federally Qualified Health Center's all-inclusive cost-
based per visit rate as set forth in this subpart;
(iii) Less any amount the FQHC may charge as described in section
1857(e)(3)(B) of the Act.
(2) Any financial incentives provided to Federally Qualified Health
Centers under their Medicare Advantage contracts, such as risk pool
payments, bonuses, or withholds, are prohibited from being included in
the calculation of supplemental payments due to the Federally Qualified
Health Center.
(b) Per visit supplemental payment. A supplemental payment required
under this section is made to the Federally Qualified Health Center
when a covered face-to-face encounter occurs between a Medicare
Advantage enrollee and a practitioner as set forth in Sec. 405.4563.

PART 410--SUPPLEMENTARY MEDICAL INSURANCE (SMI) BENEFITS

4. The authority citation for part 410 continues to read as
follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).

Subpart B--Medical and Other Health Services

5. Section 410.23 is amended by revising paragraph (a)(2)(i)
through (iv) to read as follows:

Sec. 410.23 Screening for glaucoma: Conditions for and limitations on
coverage.

(a) * * *
(2) * * *
(i) Individual with diabetes mellitus.
(ii) Individual with a family history of glaucoma.
(iii) African-Americans age 50 and over.
(iv) Hispanic-Americans age 65 and over.
* * * * *
6. Section 410.78 is amended by--
A. Revising paragraph (b) introductory text.
B. Adding paragraph (b)(2)(viii).
The revision and addition read as follows:

Sec. 410.78 Telehealth services

* * * * *
(b) General rule. Medicare Part B pays for office and other
outpatient visits, professional consultation, psychiatric diagnostic
interview examination, individual psychotherapy, pharmacologic
management, end stage renal disease related services included in the
monthly capitation payment (except for one visit per month to examine
the access site), and individual medical nutrition therapy furnished by
an interactive telecommunications system if the following conditions
are met:
(2) * * *
(viii) A registered dietician or nutrition professional as
described in Sec. 410.134.
* * * * *

PART 411--EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON MEDICARE
PAYMENT

7. The authority citation for part 411 continues to read as
follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).

Subpart J--Financial Relationships Between Physicians and Entities
Furnishing Designated Health Services

8. Section 411.351 is amended by--
A. Revising the definition ``Radiation therapy services and
supplies''.
B. Revising the definition ``Radiology and certain other imaging
services''.
The revisions read as follows:

Sec. 411.351 Definitions.

* * * * *
Radiation therapy services and supplies means those particular
services and supplies so identified on the List of CPT/HCPCS Codes. All
services and supplies identified on the List of CPT/HCPCS Codes are
radiation therapy services and supplies for purposes of this subpart.
Any service or supply not specifically identified as radiation therapy
services or supplies on the List of CPT/HCPCS Codes is not a radiation
therapy service or supply for purposes of this subpart. The list of
codes identifying radiation therapy services and supplies are those
covered under section 1861(s)(4) of the Act and Sec. 410.35 of this
chapter.
Radiation and certain other imaging services means those particular
services so identified on the List of CPT/HCPCS Codes. All services so
identified on the List of CPT/HCPCS Codes are radiology and certain
other imaging services for purposes of this subpart. Any service not
specifically identified as radiology and certain other imaging services
on the List of CPT/HCPCS Codes, is not a radiology or certain other
imaging service for purposes of this subpart. The list of codes
identifying radiology and certain other imaging services includes the
professional and technical components of any diagnostic test or
procedure using x-rays, ultrasound, or other imaging services,
computerized axial tomography, or magnetic resonance imaging, or
diagnostic nuclear medicine, as covered under section 1861(s)(3) of the
Act and Sec. 410.32 and Sec. 410.34 of this chapter, but does not
include--
(1) X-ray, fluoroscopy, or ultrasound procedures that require the
insertion of a needle, catheter, tube, or probe through the skin or
into a body orifice.
(2) Radiology procedures that are integral to the performance of a
non-radiological medical procedure and performed--
(i) During the nonradiological medical procedure; or
(ii) Immediately following the non-radiological medical procedure
where necessary to confirm placement of an item placed during the
nonradiological medical procedure.
* * * * *

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR
END-STAGE RENAL DISEASE SERVICES; PROSPECTIVELY DETERMINED PAYMENT
RATES FOR SKILLED NURSING FACILITIES

9. The authority citation for part 413 continues to read as
follows:

Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i), and
(n), 1871, 1881, 1883, and 1886 of the Social Security Act (42
U.S.C. 1302, 1395D(D), 1395f(b), 1395g, 13951(a), (i), and (n),
1395hh, 1395rr, 1395tt, and 1395ww).

Subpart H--Payment for End-Stage Renal Disease (ESRD) Services and
Organ Procurement Costs

10. Section 413.170 is amended by revising paragraph (b) to read as
follows:

Sec. 413.170 Scope.

* * * * *
(b) Providing procedures and criteria under which a pediatric ESRD
facility (an ESRD facility with at least a 50 percent pediatric patient
mix) may receive an exception to the prospective payment rates; and
* * * * *
11. Section 413.174 is amended by--
A. Revising paragraph (f).
B. Removing paragraph (g).
The revisions read as follows:

Sec. 413.174 Prospective rates for hospital-based and independent
ESRD facilities.

* * * * *
(f) Additional payment for separately billable drugs. CMS makes an
additional payment for certain drugs furnished to ESRD patients by a
Medicare-approved ESRD facility. CMS makes this payment directly to the
ESRD facility. Payment for these drugs is made--
(1) Only on an assignment basis, directly to the facility which
must

[[Page 45873]]

accept, as payment in full, the amount that CMS determines;
(2) Subject to the Part B deductible and coinsurance;
(3) To hospital-based facilities in accordance with the cost
reimbursement rules set forth in this part, except for erythropoietin/
epogen (commonly called EPO), which is paid the same amount as
independent facilities; and
(4) To independent facilities in accordance with the methodology
set forth in Sec. 405.517 of this chapter.
12. Section 413.180 is amended by--
A. Revising paragraphs (b) and (d)
B. Removing paragraphs (e) and (k).
C. Redesignating paragraphs (f) through (j) as paragraphs (e)
through (i).
D. Redesignating paragraphs (l) and (m) as paragraphs (j) and (k).
The amendment reads as follows:

Sec. 413.180 Procedures for requesting exceptions to payment rates.

* * * * *
(b) Criteria for requesting an exception. If a pediatric ESRD
facility projects on the basis of prior year costs and utilization
trends that it has an allowable cost per treatment higher than its
prospective rate set under Sec. 413.174, and if these excess costs are
attributable to one or more of the factors in Sec. 413.182, the
facility may request, in accordance with paragraph (e) of this section,
that CMS approve an exception to that rate and set a higher prospective
payment rate.
* * * * *
(d) Payment rate exception request. Effective October 1, 2002, CMS
may approve exceptions to a pediatric ESRD facility's updated
prospective payment rate, if the pediatric ESRD facility did not have
an approved exception rate as of October 1, 2002. A pediatric ESRD
facility may request an exception to its payment rate at any time after
it is in operation for at least 12 consecutive months.
* * * * *
13. Section 413.182 is revised to read as follows:

Sec. 413.182 Criteria for approval of exception requests.

(a) CMS may approve exceptions to a pediatric ESRD facility's
prospective payment rate if the pediatric ESRD facility did not have an
approved exception rate as of October 1, 2002.
(b) The pediatric ESRD facility must demonstrate, by convincing
objective evidence, that its total per treatment costs are reasonable
and allowable under the relevant cost reimbursement principles of part
413 and that its per treatment costs in excess of its payment rate are
directly attributable to any of the following criteria:
(1) Pediatric patient mix, as specified in Sec. 413.184.
(2) Self-dialysis training costs in pediatric facilities, as
specified in Sec. 413.186
14. Section 413.184 is amended by revising paragraphs (a) and
(b)(1) to read as follows:

Sec. 413.184 Payment exception: Pediatric patient mix.

(a) Qualifications. To qualify for an exception to its prospective
payment rate based on its pediatric patient mix a facility must
demonstrate that--
(1) At least 50 percent of its patients are individuals under 18
years of age;
(2) Its nursing personnel costs are allocated properly between each
mode of care;
(3) The additional nursing hours per treatment are not the result
of an excess number of employees;
(4) Its pediatric patients require a significantly higher staff-to-
patient ratio than typical adult patients; and
(5) These services, procedures, or supplies and its per treatment
costs are clearly prudent and reasonable when compared to those of
pediatric facilities with a similar patient mix.
(b) Documentation. (1) A pediatric ESRD facility must submit a
listing of all outpatient dialysis patients (including all home
patients) treated during the most recently completed and filed cost
report (in accordance with cost reporting requirements under Sec.
413.198) showing--
(i) Age of patients and percentage of patients under the age of 18;
(ii) Individual patient diagnosis;
(iii) Home patients and ages;
(iv) In-facility patients, staff-assisted, or self-dialysis;
(v) Diabetic patients; and
(vi) Patients isolated because of contagious disease.
* * * * *

Sec. 413.186 [Removed]

15. Section 413.186 is removed.

Sec. 413.188 [Removed]

16. Section 413.188 is removed.
17. Redesignate Sec. 413.190 as Sec. 413.186 and revise the newly
designated Sec. 413.186 to read as follows:

Sec. 413.186 Payment exception: Self-dialysis training costs in
pediatric facilit