[Federal Register: August 23, 2006 (Volume 71, Number 163)]
[Proposed Rules]               
[Page 49505-49977]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23au06-34]                         
 

[[Page 49505]]

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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 410, 414, et al. Medicare: Hospital Outpatient Prospective 
Payment System and CY 2007 Payment Rates; Proposed Rule


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 410, 414, 416, 419, 421, 485, and 488

[CMS-1506-P; CMS-4125-P]
RIN 0938-AO15

 
Medicare Program; Hospital Outpatient Prospective Payment System 
and CY 2007 Payment Rates; CY 2007 Update to the Ambulatory Surgical 
Center Covered Procedures List; Ambulatory Surgical Center Payment 
System and CY 2008 Payment Rates; Medicare Administrative Contractors; 
and Reporting Hospital Quality Data for FY 2008 Inpatient Prospective 
Payment System Annual Payment Update Program--HCAHPS[supreg] Survey, 
SCIP, and Mortality

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would revise the Medicare hospital 
outpatient prospective payment system to implement applicable statutory 
requirements and changes arising from our continuing experience with 
this system, and to implement certain related provisions of the 
Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 
2003, and the Deficit Reduction Act (DRA) of 2005. The proposed rule 
describes proposed changes to the amounts and factors used to determine 
the payment rates for Medicare hospital outpatient services paid under 
the prospective payment system. These changes would be applicable to 
services furnished on or after January 1, 2007.
    In addition, this proposed rule would revise the current list of 
procedures that are approved when furnished in a Medicare-approved 
ambulatory surgical center (ASC), which would be applicable to services 
furnished on or after January 1, 2007. Further, this proposed rule 
would revise the ASC facility payment system to implement provisions of 
the MMA and other applicable statutory requirements, and update the ASC 
payment rates. Changes to the ASC facility payment system and the 
payment rates would be applicable to services furnished on or after 
January 1, 2008.
    This proposed rule would revise the emergency medical screening 
requirements for critical access hospitals (CAHs).
    In addition, this proposed rule would support implementation of a 
restructuring of the contracting entities responsibilities and 
functions that support the adjudication of Medicare fee-for-service 
(FFS) claims. This restructuring is directed by section 1874A of the 
Act, as added by section 911 of the MMA. The prior separate Medicare 
intermediary and Medicare carrier contracting authorities under Title 
XVIII of the Act have been replaced with the Medicare Administrative 
Contractor (MAC) authority.
    This proposed rule would also continue to implement the 
requirements of the DRA that require that we expand the ``starter set'' 
of 10 quality measures that we used in FY 2005 and FY 2006 for the 
hospital Inpatient Prospective Payment System (IPPS) Reporting Hospital 
Quality Data for the Annual Payment Update (RHQDAPU) program. We began 
to adopt expanded measures effective for payments beginning in FY 2007. 
We are proposing to add additional quality measures to the expanded set 
of measures for FY 2008 payment purposes. These measures include the 
HCAHPS[supreg] survey, as well as Surgical Care Improvement Project 
(SCIP, formerly Surgical Infection Prevention (SIP)), and Mortality 
quality measures.

DATES: To be assured consideration, comments on all sections of the 
preamble of this proposed rule, except section XVIII. and section 
XXIII., must be received at one of the addresses provided in the 
ADDRESSES section, no later than 5 p.m. October 10, 2006.
    To be assured consideration, comments on section XVIII. of this 
preamble relating to the proposed revised ASC payment system and the 
related regulation changes for implementation January 1, 2008, must be 
received at one of the addresses provided in the ADDRESSES section, no 
later than 5 p.m. on November 6, 2006.

ADDRESSES: In commenting on all provisions except those found in 
section XXIII. of the preamble, please refer to file code CMS-1506-P. 
In commenting on the provisions found in section XXIII. of the preamble 
for the FY 2008 IPPS RHQDAPU program, please refer to file code CMS-
4125-P. Because of staff and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission.
    You may submit comments in one of four ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to http://www.cms.hhs.gov/eRulemaking. Click 

on the link ``Submit electronic comments on CMS regulations with an 
open comment period.'' (Attachments should be in Microsoft Word, 
WordPerfect, or Excel; however, we prefer Microsoft Word.)
    2. By regular 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-1506-P, or CMS-4125-P, P.O. Box 8011, Baltimore, MD 21244-1850.
    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-1506-P, or CMS-4125-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: Room 
445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 21244-
1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    (Because access to the interior of the Hubert H. Humphrey 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 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:


[[Page 49507]]


Alberta Dwivedi, (410) 786-0378, Hospital outpatient prospective 
payment issues.
Dana Burley, (410) 786-0378, Ambulatory surgery center issues.
Suzanne Asplen, (410) 786-4558, Partial hospitalization and community 
mental health centers issues.
Mary Collins, (410) 786-3189, Critical access hospital emergency 
medical planning issues.
Sandra M. Clarke, (410) 786-6975, Medicare Administrative Contractors 
issues.
Mark Zobel, (410) 786-6905, Medicare Administrative Contractors issues.
Liz Goldstein, (410) 786-6665, FY 2008 IPPS RHQDAPU HCAHPS[supreg] 
issues.
Bill Lehrman, (410) 786-1037, FY 2008 IPPS RHQDAPU HCAHPS[supreg] 
issues.
Sheila Blackstock, (410) 786-3506, FY 2008 IPPS RHQDAPU SCIP and 
mortality issues.

SUPPLEMENTARY INFORMATION:


     Submitting Comments We welcome comments from the public on all 
issues set forth in this proposed rule to assist us in fully 
considering issues and developing policies. You can assist us by 
referencing the file code CMS-1506-P or file code CMS-4125-P for FY 
2008 RHQDAPU program issues, 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. We post all comments received before the close 
of the comment period on the following Web site as soon as possible 
after they have been received: http://www.cms.hhs.gov/eRulemaking. 

Click on the link ``Electronic Comments on CMS Regulations'' on that 
Web site to view public comments.
    Comments received timely will also 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, MD 21244, on Monday 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.

Electronic Access

    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. Free public access is available on a Wide 
Area Information Server (WAIS) through the Internet and via 
asynchronous dial-in. Internet users can access the database by using 
the World Wide Web; the Superintendent of Documents' home page address 
is http://www.gpoaccess.gov/index.html, by using local WAIS client 

software, or by telnet to swais.access.gpo.gov, then login as guest (no 
password required). Dial-in users should use communications software 
and modem to call (202) 512-1661; type swais, then login as guest (no 
password required).

Alphabetical List of Acronyms Appearing in the Proposed Rule

ACEP American College of Emergency Physicians
AHA American Hospital Association
AHIMA American Health Information Management Association
AMA American Medical Association
APC Ambulatory payment classification
AMP Average manufacturer price
ASC Ambulatory Surgical Center
ASP Average sales price
AWP Average wholesale price
BBA Balanced Budget Act of 1997, Pub. L. 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999, Pub. L. 
106-113
BCA Blue Cross Association
BCBSA Blue Cross and Blue Shield Association
BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000, Pub. L. 106-554
CAH Critical access hospital
CBSA Core-Based Statistical Area
CCR Cost-to-charge ratio
CMHC Community mental health center
CMS Centers for Medicare & Medicaid Services
CNS Clinical nurse specialist
CORF Comprehensive outpatient rehabilitation facility
CPT [Physicians'] Current Procedural Terminology, Fourth Edition, 
2006, copyrighted by the American Medical Association
CRNA Certified registered nurse anesthetist
CY Calendar year
DMEPOS Durable medical equipment, prosthetics, orthotics, and 
supplies
DMERC Durable medical equipment regional carrier
DRA Deficit Reduction Act of 2005, Pub. L. 109-171
DSH Disproportionate share hospital
EACH Essential Access Community Hospital
E/M Evaluation and management
EPO Erythropoietin
ESRD End-stage renal disease
FACA Federal Advisory Committee Act, Pub. L. 92-463
FAR Federal Acquisition Regulations
FDA Food and Drug Administration
FFS Fee-for-service
FSS Federal Supply Schedule
FY Federal fiscal year
GAO Government Accountability Office
HCPCS Healthcare Common Procedure Coding System
HCRIS Hospital Cost Report Information System
HHA Home health agency
HIPAA Health Insurance Portability and Accountability Act of 1996, 
Pub. L. 104-191
ICD-9-CM International Classification of Diseases, Ninth Edition, 
Clinical Modification
IDE Investigational device exemption
IPPS [Hospital] Inpatient prospective payment system
IVIG Intravenous immune globulin
MAC Medicare Administrative Contractors
MedPAC Medicare Payment Advisory Commission
MDH Medicare-dependent, small rural hospital
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Pub. L. 108-173
MPFS Medicare Physician Fee Schedule
MSA Metropolitan Statistical Area
NCCI National Correct Coding Initiative
NCD National Coverage Determination
NTIOL New technology intraocular lens
OCE Outpatient Code Editor
OMB Office of Management and Budget
OPD [Hospital] Outpatient department
OPPS [Hospital] Outpatient prospective payment system
PA Physician assistant
PHP Partial hospitalization program
PM Program memorandum
PPI Producer Price Index
PPS Prospective payment system
PPV Pneumococcal pneumonia (virus)
PRA Paperwork Reduction Act
QIO Quality Improvement Organization
RFA Regulatory Flexibility Act
RHQDAPU Reporting hospital quality data for annual payment update
RHHI Regional home health intermediary
SBA Small Business Administration
SCH Sole community hospital
SDP Single Drug Pricer
SI Status indicator
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-
248
TOPS Transitional outpatient payments
USPDI United States Pharmacopoeia Drug Information

    In this document, we address three payment systems under the 
Medicare program: the hospital outpatient prospective payment system 
(OPPS), the hospital inpatient prospective payment system (IPPS), and 
the ambulatory surgical center (ASC) payment system. The provisions 
relating to the OPPS are included in sections I. through XIII., XV., 
XVI., XX., XXIV., XXVI., and XXVII. of the preamble and in Addenda A, 
B, C (available on the Internet only; see section XXIV. of the preamble 
of this proposed rule), D1, D2, and E of this proposed rule. The 
provisions related to IPPS are included in sections XXIII., XXV. 
through XXVII. of the preamble. The provisions related to ASCs are

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included in sections XVII,. XVIII., and XXIV. through XXVII. of the 
preamble and in Addenda AA, BB, and CC of the proposed rule.
    In addition, in this document, we address our proposed 
implementation of the Medicare contracting reform provisions of the MMA 
that replace the prior Medicare intermediary and carrier authorities 
formerly found in sections 1816 and 1842 of the Act with Medicare 
administrative contractor (MAC) authority under a new section 1874A of 
the Act. The provisions relating to MACs are included in sections XIX., 
XXVI., and XXVII.E. of this preamble. To assist readers in referencing 
sections contained in this document, we are providing the following 
table of contents:

Table of Contents

I. Background for the OPPS
    A. Legislative and Regulatory Authority for the Hospital 
Outpatient Prospective Payment System
    B. Excluded OPPS Services and Hospitals
    C. Prior Rulemaking
    D. APC Advisory Panel
    1. Authority of the APC Panel
    2. Establishment of the APC Panel
    3. APC Panel Meetings and Organizational Structure
    E. Provisions of the Medicare Prescription Drug, Improvement, 
and Modernization Act of 2003
    1. Reduction in Threshold for Separate APCs for Drugs
    2. Special Payment for Brachytherapy
    F. Provisions of the Deficit Reduction Act of 2005
    1. 3-Year Transition of Hold Harmless Payments
    2. Medicare Coverage of Ultrasound Screening for Abdominal 
Aortic Aneurysms
    G. Summary of the Major Contents of This Proposed Rule
    1. Proposed Updates Affecting Payment for CY 2007
    2. Proposed Ambulatory Payment Classification (APC) Group 
Policies
    3. Proposed Payment Changes for Devices
    4. Proposed Payment Changes for Drugs, Biologicals, and 
Radiopharmaceuticals
    5. Estimate of Transitional Pass-Through Spending in CY 2007 for 
Drugs, Biologicals, and Radiopharmaceuticals
    6. Proposed Brachytherapy Payment Changes
    7. Proposed Coding and Payment for Drug and Vaccine 
Administration
    8. Proposed Hospital Coding for Evaluation and Management (E/M) 
Services
    9. Proposed Payment for Blood and Blood Products
    10. Proposed Payment for Observation Services
    11. Procedures That Will Be Paid Only as Inpatient Services
    12. Proposed Nonrecurring Policy Changes
    13. Emergency Medical Screening in Critical Access Hospitals 
(CAHs)
    14. Proposed OPPS Payment Status and Comment Indicator
    15. OPPS Policy and Payment Recommendations
    16. Proposed Policies Affecting Ambulatory Surgical Centers 
(ASCs) for CY 2007
    17. Proposed Revised Ambulatory Surgical Center (ASC) Payment 
System for Implementation January 1, 2008
    18. Medicare Provider Contractor Reform Mandate
    19. Reporting Quality Data for Improved Quality and Costs under 
the OPPS
    20. Promoting Effective Use of Health Information Technology
    21. Health Care Information Transparency Initiative
    22. Reporting Hospital Quality Data for Annual Payment Update 
under the IPPS
    23. Impact Analysis
II. Proposed Updates Affecting OPPS Payments for CY 2007
    A. Proposed Recalibration of APC Relative Weights for CY 2007
    1. Database Construction
    a. Database Source and Methodology
    b. Proposed Use of Single and Multiple Procedure Claims
    c. Proposed Revision to the Overall Cost-to-Charge Ratio (CCR) 
Calculation
    2. Proposed Calculation of Median Costs for CY 2007
    3. Proposed Calculation of Scaled OPPS Payment Weights
    4. Proposed Changes to Packaged Services
    B. Proposed Payment for Partial Hospitalization
    1. Background
    2. Proposed PHP APC Update for CY 2007
    3. Proposed Separate Threshold for Outlier Payments to CMHCs
    C. Proposed Conversion Factor Update for CY 2007
    D. Proposed Wage Index Changes for CY 2007
    E. Proposed Statewide Average Default CCRs
    F. OPPS Payments to Certain Rural Hospitals
    1. Hold Harmless Transitional Payment Changes Made by Pub. L. 
109-171 (DRA)
    2. Proposed Adjustment for Rural SCHs Implemented in CY 2006 
Related to Pub. L. 108-173 (MMA)
    G. Proposed CY 2007 Hospital Outpatient Outlier Payments
    H. Calculation of the Proposed OPPS National Unadjusted Medicare 
Payment
    I. Proposed Beneficiary Copayments for CY 2007
    1. Background
    2. Proposed Copayment for CY 2007
    3. Calculation of a Proposed Adjusted Copayment Amount for an 
APC Group for CY 2007
III. Proposed OPPS Ambulatory Payment Classification (APC) Group 
Policies
    A. Proposed Treatment of New HCPCS and CPT Codes
    1. Proposed Treatment of New HCPCS Codes Included in the Second 
and Third Quarterly OPPS Updates for CY 2006
    2. Proposed Treatment of New CY 2007 Category I and III CPT 
Codes and Level II HCPCS Codes
    3. Proposed Treatment of New Mid-Year CPT Codes
    B. Proposed Changes--Variations Within APCs
    1. Background
    2. Application of the 2 Times Rule
    3. Exceptions to the 2 Times Rule
    C. New Technology APCs
    1. Introduction
    2. Proposed Movement of Procedures from New Technology APCs to 
Clinical APCs
    a. Nonmyocardial Positron Emission Tomography (PET) Scans
    b. PET/Computed Tomography (CT) Scans
    c. Stereotactic Radiosurgery (SRS) Treatment Delivery Services
    d. Magnetoencephalography (MEG) Services
    e. Other Services in New Technology APCs
    D. Proposed APC-Specific Policies
    1. Skin Replacement Surgery and Skin Substitutes (APCs 0024, 
0025 and 0027)
    2. Treatment of Fracture/Dislocation (APC 0046)
    3. Electrophysiologic Recording/Mapping (APC 0087)
    4. Insertion of Mesh or Other Prosthesis (APC 0154)
    5. Percutaneous Renal Cryoablation (APC 0163)
    6. Keratoprosthesis (APC 0244)
    7. Medication Therapy Management Services
    8. Complex Interstitial Radiation Source Application (APC 0651)
    9. Single Allergy Tests (APC 0381)
    10. Hyperbaric Oxygen Therapy (APC 0659)
    11. Myocardial Positron Emission Tomography (PET) Scans (APCs 
0306, 0307)
    12. Radiology Procedures (APCs 0333, 0662, and Other Imaging 
APCs)
IV. Proposed OPPS Payment Changes for Devices
    A. Proposed Treatment of Device-Dependent APCs
    1. Background
    2. Proposed CY 2007 Payment Policy
    3. Devices Billed in the Absence of an Appropriate Procedure 
Code
    4. Proposed Payment Policy When Devices are Replaced Without 
Cost or Where Credit for a Replaced Device is Furnished to the 
Hospital
    B. Proposed Pass-Through Payments for Devices
    1. Expiration of Transitional Pass-Through Payments for Certain 
Devices
    a. Background
    b. Proposed Policy for CY 2007
    2. Provisions for Reducing Transitional Pass-Through Payments to 
Offset Costs Packaged Into APC Groups
    a. Background
    b. Proposed Policy for CY 2007
V. Proposed OPPS Payment Changes for Drugs, Biologicals, and 
Radiopharmaceuticals
    A. Proposed Transitional Pass-Through Payment for Additional 
Costs of Drugs and Biologicals
    1. Background
    2. Expiration in CY 2006 of Pass-Through Status for Drugs and 
Biologicals
    3. Drugs and Biologicals With Proposed Pass-Through Status in CY 
2007

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    B. Proposed Payment for Drugs, Biologicals, and 
Radiopharmaceuticals Without Pass-Through Status
    1. Background
    2. Proposed Criteria for Packaging Payment for Drugs, 
Biologicals, and Radiopharmaceuticals
    3. Proposed Payment for Drugs, Biologicals, and 
Radiopharmaceuticals Without Pass-Through Status That Are Not 
Packaged
    a. Proposed Payment for Specified Covered Outpatient Drugs
    b. Proposed CY 2007 Payment for Nonpass-Through Drugs, 
Biologicals, Radiopharmaceuticals With HCPCS Codes, But Without OPPS 
Hospital Claims Data
VI. Proposed Estimate of OPPS Transitional Pass-Through Spending in 
CY 2007 for Drugs, Biologicals, Radiopharmaceuticals, and Devices
    A. Total Allowed Pass-Through Spending
    B. Proposed Estimate of Pass-Through Spending for CY 2007
VII. Proposed Brachytherapy Source Payment Changes
    A. Background
    B. Proposed Payments for Brachytherapy Sources in CY 2007
VIII. Proposed Changes to OPPS Drug Administration Coding and 
Payment for CY 2007
    A. Background
    B. Proposed CY 2007 Drug Administration Coding Changes
    C. Proposed CY 2007 Drug Administration Payment Changes
IX. Proposed Hospital Coding and Payment for Visits
    A. Background
    1. Guidelines Based on the Number or Type of Staff Interventions
    2. Guidelines Based on the Time Staff Spent With the Patient
    3. Guidelines Based on a Point System Where a Certain Number of 
Points Are Assigned to Each Staff Intervention Based on the Time, 
Intensity, and Staff Type Required for the Intervention
    4. Guidelines Based on Patient Complexity
    B. CY 2007 Proposed Coding
    1. Clinic Visits
    2. Emergency Department Visits
    3. Critical Care Services
    C. CY 2007 Proposed Payment Policy
    D. CY 2007 Proposed Treatment of Guidelines
    1. Background
    2. Outstanding Concerns With the AHA/AHIMA Guidelines
    a. Three Versus Five Levels of Codes
    b. Lack of Clarity for Some Interventions
    c. Treatment of Separately Payable Services
    d. Some Interventions Appear Overvalued
    e. Concerns of Specialty Clinics
    f. American with Disabilities Act
    g. Differentiation Between New and Established Patients, and 
Between Standard Visits and Consultations
    h. Distinction Between Type A and Type B Emergency Departments
X. Proposed Payment for Blood and Blood Products
    A. Background
    B. Proposed Policy Changes for CY 2007
XI. Proposed OPPS Payment for Observation Services
XII. Proposed Procedures That Will Be Paid Only as Inpatient 
Procedures
    A. Background
    B. Proposed Changes to the Inpatient Only List
    C. Proposed CY 2007 Payment for Ancillary Outpatient Services 
When Patient Expires (-CA Modifier)
    1. Background
    2. Proposed Policy for CY 2007
XIII. Proposed OPPS Nonrecurring Policy Changes
    A. Removal of Comprehensive Outpatient Rehabilitation Facility 
(CORF) Services from the List of Services Paid under the OPPS
    B. Addition of Ultrasound Screening for Abdominal Aortic 
Aneurysms (AAAs) (Section 5112 of Pub. L. 109-171 (DRA))
    1. Background
    2. Proposed Assignment of New HCPCS Code for Payment of 
Ultrasound Screening for Abdominal Aortic Aneurysm (AAA) (Section 
5112)
    3. Handling of Comments Received in Response to This Proposal
XIV. Emergency Medical Screening in Critical Access Hospitals (CAHs)
    A. Background
    B. Proposed Policy Change
XV. Proposed OPPS Payment Status and Comment Indicators
    A. Proposed CY 2007 Status Indicator Definitions
    1. Proposed Payment Status Indicators to Designate Services That 
Are Paid Under the OPPS
    2. Proposed Payment Status Indicators to Designate Services That 
Are Paid Under a Payment System Other Than the OPPS
    3. Proposed Payment Status Indicators to Designate Services That 
Are Not Recognized Under the OPPS But That May Be Recognized by 
Other Institutional Providers
    4. Proposed Payment Status Indicators to Designate Services That 
Are Not Payable by Medicare
    B. Proposed CY 2007 Comment Indicator Definitions
XVI. OPPS Policy and Payment Recommendations
    A. MedPAC Recommendations
    B. APC Panel Recommendations
    C. GAO Recommendations
XVII. Proposed Policies Affecting Ambulatory Surgical Centers (ASCs) 
for CY 2007
    A. ASC Background
    1. Legislative History
    2. Current Payment Method
    3. Published Changes to the ASC List
    B. Proposed ASC List Update Effective for Services Furnished on 
or After January 1, 2007
    1. Criteria for Additions to or Deletions from the ASC List
    2. Response to Comments to the May 4, 2005 Interim Final Rule 
for the ASC Update
    3. Procedures Proposed for Additions to the ASC List
    4. Suggested Additions Not Accepted
    5. Rationale for Payment Assignment
    6. Other Comments on the May 4, 2005 Interim Final Rule
    C. Proposed Regulatory Changes for CY 2007
    D. Implementation of Section 5103 of Pub. L. 109-171 (DRA)
    E. Proposal to Modify the Current ASC Process for Adjusting 
Payment for New Technology Intraocular Lenses (NTIOLs)
    1. Background
    a. Current ASC Payment for Insertion of IOLs
    b. Classes of NTIOLs Approved for Payment Adjustment
    2. Proposed Changes
    a. Process for Recognizing IOLs as Belonging to an Active IOL 
Class
    b. Public Notice and Comment Regarding Adjustments of NTIOL 
Payment Amounts
    c. Factors CMS Considers in Determining Whether a Payment 
Adjustment for Insertion of a New Class of IOL is Appropriate
    d. Proposal to Revise Content of a Request to Review
    e. Notice of CMS Determination
    f. Proposed Payment Adjustment
XVIII. Proposed Revised ASC Payment System for Implementation 
January 1, 2008
    A. Background
    1. Provisions of Pub. L. 108-173
    2. Other Factors Considered
    B. Procedures Proposed for Medicare Payment in ASCs Effective 
for Services Furnished on or After January 1, 2008
    1. Proposed Payable Procedures
    a. Proposed Definition of Surgical Procedure
    b. Procedures Proposed for Exclusion from Payment Under the 
Revised ASC System
    2. Proposed Treatment of Unlisted Procedure Codes and Procedures 
That Are Not Paid Separately Under the OPPS
    3. Proposed Treatment of Office-Based Procedures
    4. Listing of Surgical Procedures Proposed for Exclusion from 
Payment of an ASC Facility Fee Under the Revised Payment System
    C. Proposed Ratesetting Method
    1. Overview of Current ASC Payment System
    2. Proposal to Base ASC Relative Payment Weights on APC Groups 
and Relative Payment Weights Established Under the OPPS
    3. Proposed Packaging Policy
    4. Payment for Corneal Tissue Under the Revised ASC Payment 
System
    5. Proposed Payment for Office-Based Procedures
    6. Payment Policy for Multiple Procedure Discounting
    7. Proposed Geographic Adjustment
    8. Proposed Adjustment for Inflation
    9. Proposed Beneficiary Coinsurance
    10. Proposed to Phase in Implementation of Payment Rates 
Calculated Under the CY 2008 Revised ASC Payment System
    11. Proposed Calculation of ASC Conversion Factor and Payment 
Rates for CY 2008
    a. Overview
    b. Budget Neutrality Requirement

[[Page 49510]]

    c. Proposed Calculation of the ASC Payment Rates for CY 2008
    d. Proposed Calculation of the ASC Payment Rates for CY 2009 and 
Future Years
    e. Alternative Option for Calculating the Budget Neutrality 
Adjustment Considered
    12. Proposed Annual Updates
    D. Information in Addenda Related to the Revised CY 2008 ASC 
Payment System
    E. Technical Changes to 42 CFR Parts 414 and 416
XIX. Medicare Contracting Reform Mandate
    A. Background
    B. CMS's Vision for Medicare Fee-for-Service and MACs
    C. Provider Nomination and the Former Medicare Acquisition 
Authorities
    D. Summary of Changes Made to Sections 1816 of the Act
    E. Provisions of the Proposed Regulations
    1. Definitions
    2. Assignments of Providers and Suppliers to MACs
    3. Other Proposed Technical and Conforming Changes
    a. Definition of ``Intermediary''
    b. Intermediary Functions
    c. Options Available to Providers and CMS
    d. Nomination for Intermediary
    e. Notification of Actions on Nominations, Changes to Another 
Intermediary or to Director Payment, and Requirements for Approval 
of an Agreement
    f. Considerations Relating to the Effective and Efficient 
Administration of the Medicare Program
    g. Assignment and Reassignment of Providers by CMS
    h. Designation of National or Regional Intermediaries and 
Designation of Regional and Alternative Designated Regional 
Intermediaries for Home Health Agencies and Hospices
    i. Awarding of Experimental Contracts
XX. Reporting Quality Data for Improved Quality and Costs under the 
OPPS
XXI. Promoting Effective Use of Health Care Technology
XXII. Health Care Information Transparency Initiative
XXIII. Additional Quality Measures and Procedures for Hospital 
Reporting of Quality Data for the FY 2008 IPPS Annual Payment Update
    A. Background
    B. Proposed Additional Quality Measures for FY 2008
    1. Introduction
    2. HCAHPS[supreg] Survey and the Hospital Quality Initiative
    3. Surgical Care Improvement Project (SCIP) Quality Measures
    4. Mortality Outcome Measures
    C. General Procedures and Participation Requirements for the FY 
2008 IPPS RHQDAPU Program
    D. HCAHPS[supreg] Procedures and Participation Requirements for 
the FY 2008 IPPS RHQDAPU Program
    1. Introduction
    2. HCAHPS[supreg] Hospital Pledge and Beginning Date for Data 
Collection
    3. HCAHPS[supreg] Dry Run
    4. HCAHPS[supreg] Data Collection Requirements
    5. HCAHPS[supreg] Registration Requirements
    6. HCAHPS[supreg] Additional Steps
    7. HCAHPS[supreg] Survey Completion Requirements
    8. HCAHPS[supreg] Public Reporting
    9. Reporting HCAHPS[supreg] Results for Multi-Campus Hospitals
    E. SCIP & Mortality Measure Requirements for the FY 2008 RHQDAPU 
Program
    F. Conclusion
XXIV. Files Available to the Public Via the Internet
XXV. Collection of Information Requirements
XXVI. Response to Comments
XXVII. Regulatory Impact Analysis
    A. Overall Impact
    1. Executive Order 12866
    2. Regulatory Flexibility Act (RFA)
    3. Small Rural Hospitals
    4. Unfunded Mandates
    5. Federalism
    B. Effects of Proposed OPPS Changes in This Proposed Rule
    1. Alternatives Considered
    a. Alternatives Considered for CPT Coding and Payment Policy for 
Evaluation and Management Codes
    b. Options Considered for Brachytherapy Source Payments
    c. Options Considered for Payment of Radiopharmaceuticals
    2. Limitation of Our Analysis
    3. Estimated Impact of This Proposed Rule on Hospitals
    4. Estimated Effect of This Proposed Rule on Beneficiaries
    5. Accounting Statement
    6. Conclusion
    C. Effects of Proposed Changes to the ASC Payment System for CY 
2007
    1. Alternatives Considered
    2. Limitations on Our Analysis
    3. Estimated Effects of This Proposed Rule on ASCs
    4. Estimated Effects of This Proposed Rule on Beneficiaries
    5. Conclusion
    6. Accounting Statement
    D. Effects of the Proposed Revisions to the ASC Payment System 
for CY 2008
    1. Alternatives Considered
    2. Limitations on Our Analysis
    3. Estimated Effects of This Proposed Rule on ASCs
    4. Estimated Effects of This Proposed Rule on Beneficiaries
    5. Conclusion
    E. Effects of the Medicare Contractor Reform Mandate
    F. Effects of Proposed Additional Quality Measures and 
Procedures for Hospital Reporting of Quality Data for IPPS FY 2008
    1. Alternatives Considered
    2. Estimated Effects of This Proposed Rule
    a. Effects on Hospitals
    b. Effects on Other Providers
    c. Effects on the Medicare and Medicaid Program
    G. Executive Order 12866

Regulation Text

Addenda

Addendum A--OPPS Proposed List of Ambulatory Payment Classification 
(APCs) With Status Indicators (SI), Relative Weights, Payment Rates, 
and Copayment Amounts-- CY 2007
Addendum AA--Proposed List of Medicare Approved ASC Procedures for 
CY 2007 With Additions and Payment Rates; Including Rates That 
Result From Implementation of Section 5103 of the DRA
Addendum B--OPPS Proposed Payment Status by HCPCS Code and Related 
Information Calendar Year 2007
Addendum BB--Proposed List of Medicare Approved ASC Procedures for 
CY 2008 With Additions and Payment Rates
Addendum CC--Proposed List of Procedures for CY 2008 Subject to 
Payment Limitation at the Medicare Physician Fee Schedule (MPFS) 
Nonfacility Amount
Addendum D1--Proposed Payment Status Indicators
Addendum D2--Proposed Comment Indicators
Addendum E--Proposed CPT Codes That Are Paid Only as Inpatient 
Procedures

I. Background for the OPPS

A. Legislative and Regulatory Authority for the Hospital Outpatient 
Prospective Payment System

    When the Medicare statute was originally enacted, Medicare payment 
for hospital outpatient services was based on hospital-specific costs. 
In an effort to ensure that Medicare and its beneficiaries pay 
appropriately for services and to encourage more efficient delivery of 
care, the Congress mandated replacement of the reasonable cost-based 
payment methodology with a prospective payment system (PPS). The 
Balanced Budget Act (BBA) of 1997 (Pub. L. 105-33), added section 
1833(t) to the Social Security Act (the Act) authorizing implementation 
of a PPS for hospital outpatient services (OPPS).
    The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act 
(BBRA) of 1999 (Pub. L. 106-113), made major changes in the hospital 
OPPS. The Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act (BIPA) of 2000 (Pub. L. 106-554), made further changes 
in the OPPS. Section 1833(t) of the Act was also amended by the 
Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 
2003 (Pub. L. 108-173). The Deficit Reduction Act (DRA) of 2005 (Pub. 
L. 109-171), enacted on February 8, 2006, made additional changes in 
the OPPS. A discussion of the provisions contained in Pub. L. 109-171 
that are specific to the calendar year (CY) 2007 OPPS is included in 
section II.F. of this preamble.
    The OPPS was first implemented for services furnished on or after 
August 1, 2000. Implementing regulations for the OPPS are located at 42 
CFR Part 419.
    Under the OPPS, we pay for hospital outpatient services on a rate-
per-service

[[Page 49511]]

basis that varies according to the ambulatory payment classification 
(APC) group to which the service is assigned. We use Healthcare Common 
Procedure Coding System (HCPCS) codes (which include certain Current 
Procedural Terminology (CPT) codes) and descriptors to identify and 
group the services within each APC group. The OPPS includes payment for 
most hospital outpatient services, except those identified in section 
I.B. of this preamble. Section 1833(t)(1)(B)(ii) of the Act provides 
for Medicare payment under the OPPS for hospital outpatient services 
designated by the Secretary (which includes partial hospitalization 
services furnished by community mental health centers (CMHCs)) and 
hospital outpatient services that are furnished to inpatients who have 
exhausted their Part A benefits or who are otherwise not in a covered 
Part A stay. Section 611 of Pub. L. 108-173 added provisions for 
Medicare coverage of an initial preventive physical examination, 
subject to the applicable deductible and coinsurance, as an outpatient 
department service, payable under the OPPS.
    The OPPS rate is an unadjusted national payment amount that 
includes the Medicare payment and the beneficiary copayment. This rate 
is divided into a labor-related amount and a nonlabor-related amount. 
The labor-related amount is adjusted for area wage differences using 
the inpatient hospital wage index value for the locality in which the 
hospital or CMHC is located.
    All services and items within an APC group are comparable 
clinically and with respect to resource use (section 1833(t)(2)(B) of 
the Act). In accordance with section 1833(t)(2) of the Act, subject to 
certain exceptions, services and items within an APC group cannot be 
considered comparable with respect to the use of resources if the 
highest median (or mean cost, if elected by the Secretary) for an item 
or service in the APC group is more than 2 times greater than the 
lowest median cost for an item or service within the same APC group 
(referred to as the ``2 times rule''). In implementing this provision, 
we use the median cost of the item or service assigned to an APC group.
    Special payments under the OPPS may be made for new technology 
items and services in one of two ways. Section 1833(t)(6) of the Act 
provides for temporary additional payments which we refer to as 
``transitional pass-through payments'' for at least 2 but not more than 
3 years for certain drugs, biological agents, brachytherapy devices 
used for the treatment of cancer, and categories of other medical 
devices. For new technology services that are not eligible for 
transitional pass-through payments and for which we lack sufficient 
data to appropriately assign them to a clinical APC group, we have 
established special APC groups based on costs, which we refer to as new 
technology APCs. These new technology APCs are designated by cost bands 
which allow us to provide appropriate and consistent payment for 
designated new procedures that are not yet reflected in our claims 
data. Similar to pass-through payments, an assignment to a new 
technology APC is temporary; that is, we retain a service within a new 
technology APC until we acquire sufficient data to assign it to a 
clinically appropriate APC group.

B. Excluded OPPS Services and Hospitals

    Section 1833(t)(1)(B)(i) of the Act authorizes the Secretary to 
designate the hospital outpatient services that are paid under the 
OPPS. While most hospital outpatient services are payable under the 
OPPS, section 1833(t)(1)(B)(iv) of the Act excludes payment for 
ambulance, physical and occupational therapy, and speech-language 
pathology services, for which payment is made under a fee schedule. 
Section 614 of Pub. L. 108-173 amended section 1833(t)(1)(B)(iv) of the 
Act to exclude OPPS payment for screening and diagnostic mammography 
services. The Secretary exercised the authority granted under the 
statute to exclude from the OPPS those services that are paid under fee 
schedules or other payment systems. Such excluded services include, for 
example, the professional services of physicians and nonphysician 
practitioners paid under the Medicare Physician Fee Schedule (MPFS); 
laboratory services paid under the clinical diagnostic laboratory fee 
schedule; services for beneficiaries with end-stage renal disease 
(ESRD) that are paid under the ESRD composite rate; and, services and 
procedures that require an inpatient stay that are paid under the 
hospital inpatient prospective payment system (IPPS). We set forth the 
services that are excluded from payment under the OPPS in Sec.  419.22 
of the regulations.
    Under Sec.  419.20(b) of the regulations, we specify the types of 
hospitals and entities that are excluded from payment under the OPPS. 
These excluded entities include Maryland hospitals, but only for 
services that are paid under a cost containment waiver in accordance 
with section 1814(b)(3) of the Act; critical access hospitals (CAHs); 
hospitals located outside of the 50 States, the District of Columbia, 
and Puerto Rico; and Indian Health Service hospitals.

C. Prior Rulemaking

    On April 7, 2000, we published in the Federal Register a final rule 
with comment period (65 FR 18434) to implement a prospective payment 
system for hospital outpatient services. The hospital OPPS was first 
implemented for services furnished on or after August 1, 2000. Section 
1833(t)(9) of the Act requires the Secretary to review certain 
components of the OPPS not less often than annually and to revise the 
groups, relative payment weights, and other adjustments to take into 
account changes in medical practice, changes in technology, and the 
addition of new services, new cost data, and other relevant information 
and factors.
    Since initially implementing the OPPS, we have published final 
rules in the Federal Register annually to implement statutory 
requirements and changes arising from our experience with this system. 
We last published such a document on November 10, 2005 (70 FR 68516). 
In that final rule with comment period, we revised the OPPS to update 
the payment weights and conversion factor for services payable under 
the CY 2006 OPPS on the basis of claims data from January 1, 2004, 
through December 31, 2004, and to implement certain provisions of Pub. 
L. 108-173. In addition, we responded to public comments received on 
the provisions of November 15, 2004 final rule with comment period 
pertaining to the APC assignment of HCPCS codes identified in Addendum 
B of that rule with the new interim (NI) comment indicators; and public 
comments received on the July 25, 2005 OPPS proposed rule for CY 2006 
(70 FR 42674).
    We published a correction of the November 10, 2005 final rule with 
comment period on December 23, 2005 (70 FR 76176). This correction 
document corrected a number of technical errors that appeared in the 
November 10, 2005 final rule with comment period.

D. APC Advisory Panel

1. Authority of the APC Panel
    Section 1833(t)(9)(A) of the Act, as amended by section 201(h) of 
the BBRA, requires that we consult with an outside panel of experts to 
review the clinical integrity of the payment groups and their weights 
under the OPPS. The Act further specifies that the panel will act in an 
advisory capacity. The Advisory Panel on Ambulatory Payment

[[Page 49512]]

Classification (APC) Groups (the APC Panel), discussed under section 
I.D.2. of this preamble, fulfills these requirements. The APC Panel is 
not restricted to using data compiled by CMS and may use data collected 
or developed by organizations outside the Department in conducting its 
review.
2. Establishment of the APC Panel
    On November 21, 2000, the Secretary signed the initial charter 
establishing the APC Panel. This expert panel, which may be composed of 
up to 15 representatives of providers subject to the OPPS (currently 
employed full-time, not as consultants, in their respective areas of 
expertise), reviews and advises CMS about the clinical integrity of the 
APC groups and their weights. For purposes of this Panel, consultants 
or independent contractors are not considered to be full-time 
employees. The APC Panel is technical in nature and is governed by the 
provisions of the Federal Advisory Committee Act (FACA). Since its 
initial chartering, the Secretary has twice renewed the APC Panel's 
charter: on November 1, 2002, and on November 1, 2004. The current 
charter indicates, among other requirements, that the APC Panel 
continues to be technical in nature; is governed by the provisions of 
the FACA; may convene up to three meetings per year; has a Designated 
Federal Officer (DFO); and is chaired by a Federal official who also 
serves as a CMS medical officer.
    The current APC Panel membership and other information pertaining 
to the Panel, including its charter, Federal Register notices, meeting 
dates, agenda topics, and meeting reports can be viewed on the CMS Web 
site at http://new.cms.hhs.gov/[fxsp0]FACA/05--

Advisory[fxsp0]PanelonAmbulatoryPayment[fxsp0]ClassificationGroups.asp.
3. APC Panel Meetings and Organizational Structure
    The APC Panel first met on February 27, February 28, and March 1, 
2001. Since that initial meeting, the APC Panel has held nine 
subsequent meetings, with the last meeting taking place on March 1 and 
2, 2006. (The APC Panel did not meet on March 3, 2006, as announced in 
the meeting notice published on December 23, 2005 (70 FR 76313).) Prior 
to each meeting, we publish a notice in the Federal Register to 
announce the meeting and, when necessary, to solicit and announce 
nominations for APC Panel membership.
    The APC Panel has established an operational structure that, in 
part, includes the use of three subcommittees to facilitate its 
required APC review process. The three current subcommittees are the 
Data Subcommittee, the Observation Subcommittee, and the Packaging 
Subcommittee. The Data Subcommittee is responsible for studying the 
data issues confronting the APC Panel and for recommending options for 
resolving them. The Observation Subcommittee reviews and makes 
recommendations to the APC Panel on all issues pertaining to 
observation services paid under the OPPS, such as coding and 
operational issues. The Packaging Subcommittee studies and makes 
recommendations on issues pertaining to services that are not 
separately payable under the OPPS, but are bundled or packaged APC 
payments. Each of these subcommittees was established by a majority 
vote of the APC Panel during a scheduled APC Panel meeting. All 
subcommittee recommendations are discussed and voted upon by the full 
APC Panel.
    Discussions of the recommendations resulting from the APC Panel's 
March 2006 meeting are included in the sections of this preamble that 
are specific to each recommendation. For discussions of earlier APC 
Panel meetings and recommendations, we reference previous hospital OPPS 
final rules or the Web site mentioned earlier in this section.

E. Provisions of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003

    The Medicare Prescription Drug, Improvement, and Modernization Act 
(MMA) of 2003, Pub. L. 108-173, made changes to the Act relating to the 
Medicare OPPS. In the January 6, 2004 interim final rule with comment 
period and the November 15, 2004 final rule with comment period, we 
implemented provisions of Pub. L. 108-173 relating to the OPPS that 
were effective for services provided in CY 2004 and CY 2005, 
respectively. In the November 10, 2005 final rule with comment period, 
we implemented provisions of Pub. L. 108-173 relating to the OPPS that 
went into effect for services provided in CY 2006 (70 FR 68521). We 
note below those provisions of Pub. L. 108-173 that will expire at the 
end of CY 2006.
1. Reduction in Threshold for Separate APCs for Drugs
    Section 621(a)(2) of Pub. L. 108-173 amended section 1833(t)(16) of 
the Act to set a $50 per administration threshold for the establishment 
of separate APCs for drugs and biologicals furnished from January 1, 
2005, through December 31, 2006. Because this statutory provision will 
no longer be in effect for CY 2007, we have included a discussion of 
the proposed methodology that we would use for the drug administration 
threshold for CY 2007 in section V. of this preamble.
2. Special Payment for Brachytherapy
    Section 621(b)(1) of Pub. L. 108-173 amended section 1833(t)(16) of 
the Act to require that payment for brachytherapy devices consisting of 
a seed or seeds (or radioactive source) furnished on or after January 
1, 2004, and before January 1, 2007, be paid based on the hospital's 
charge for each device furnished, adjusted to cost. Because this 
statutory provision will no longer be in effect for CY 2007, we discuss 
our proposed methodology for payment for brachytherapy devices for CY 
2007 in section VII.B. of this preamble.

F. Provisions of the Deficit Reduction Act of 2005

    The Deficit Reduction Act (DRA) of 2005, Pub. L. 109-171, enacted 
on February 8, 2006, included three provisions affecting the OPPS, as 
discussed below.
1. 3-Year Transition of Hold Harmless Payments
    Section 5105 of Pub. L. 109-171 provides a 3-year transition of 
hold harmless OPPS payments for hospitals located in a rural area with 
not more than 100 beds that are not defined as sole community hospitals 
(SCHs). This provision provides an increased payment for such hospitals 
for covered OPD services furnished on or after January 1, 2006, and 
before January 1, 2009, if the OPPS payment they receive is less than 
the pre-BBA payment amount that they would have received for the same 
covered OPD services. This provision specifies that, in such cases, the 
amount of payment to the specified hospitals shall be increased by the 
applicable percentage of such difference. Section 5105 specifies the 
applicable percentage as 95 percent for CY 2006, 90 percent for CY 
2007, and 85 percent for CY 2008.
2. Medicare Coverage of Ultrasound Screening for Abdominal Aortic 
Aneurysms
    Section 5112 of Pub. L. 109-171 amended section 1861 of the Act to 
include coverage of ultrasound screening for abdominal aortic aneurysms 
for certain individuals on or after January 1, 2007. The provision will 
apply to individuals (a) Who receive a referral for such an ultrasound 
screening as a result of an initial preventive physical examination; 
(b) who have not

[[Page 49513]]

been previously furnished with an ultrasound screening under Medicare; 
and (c) who have a family history of abdominal aortic aneurysm or 
manifest risk factors included in a beneficiary category recommended 
for screening (as determined by the United States Preventive Services 
Task Force). Ultrasound screening for abdominal aortic aneurysm will be 
included in the initial preventive physical examination. Section 5112 
also added ultrasound screening for abdominal aortic aneurysm to the 
list of services for which the beneficiary deductible does not apply. 
These amendments apply to services furnished on or after January 1, 
2007.

G. Summary of the Major Content of This Proposed Rule

    In this proposed rule, we are setting forth proposed changes to the 
Medicare hospital OPPS for CY 2007. These changes would be effective 
for services furnished on or after January 1, 2007. We are setting 
forth proposed changes to the Medicare ASC program for CY 2007 and CY 
2008. We are setting forth proposed changes to the way we process FFS 
claims under Medicare Part A and Part B. Some of these changes were 
effective on October 1, 2005 and all of the changes are to be fully 
implemented by October 1, 2011. Finally, we are setting forth a notice 
seeking comments on the RHQDAPU program under the Medicare hospital 
IPPS for FY 2008. These changes would be effective for payments 
beginning with FY 2008. The following is a summary of the major changes 
that we are proposing to make:
1. Proposed Updates Affecting Payments for CY 2007
    In section II. of this preamble, we set forth--
     The methodology used to recalibrate the proposed APC 
relative payment weights and the proposed recalibration of the relative 
payment weights for CY 2007.
     The proposed payment for partial hospitalization, 
including the proposed separate threshold for outlier payments for 
CMHCs.
     The proposed update to the conversion factor used to 
determine payment rates under the OPPS for CY 2007.
     The proposed retention of our current policy to apply the 
IPPS wage indices to wage adjust the APC median costs in determining 
the OPPS payment rate and the copayment standardized amount for CY 
2007.
     The proposed update of statewide average default cost-to-
charge ratios.
     Proposed changes relating to the expiring hold harmless 
payment provision.
     Proposed changes to payment for rural sole community 
hospitals for CY 2007.
     Proposed changes in the way we calculate hospital 
outpatient outlier payments for CY 2007.
     Calculation of the proposed national unadjusted Medicare 
OPPS payment.
     The proposed beneficiary copayment for OPPS services for 
CY 2007.
2. Proposed Ambulatory Payment Classification (APC) Group Policies
    In section III. of this preamble, we discuss the proposed additions 
of new procedure codes to the APCs; our proposal to establish a number 
of new APCs; and our proposal to make changes to the assignment of 
HCPCS codes under a number of existing APCs based on our analyses of 
Medicare claims data and recommendations of the APC Panel. We also 
discuss the application of the 2 times rule and proposed exceptions to 
it; proposed changes for specific APCs; the proposed refinement of the 
New Technology cost bands; and the proposed movement of procedures from 
the New Technology APCs.
3. Proposed Payment Changes for Devices
    In section IV. of this preamble, we discuss proposed changes to the 
device-dependent APCs, and to the pass-through payment for categories 
of devices.
4. Proposed Payment Changes for Drugs, Biologicals, and 
Radiopharmaceuticals
    In section V. of this preamble, we discuss proposed changes for 
drugs, biologicals, and radiopharmaceuticals.
5. Estimate of Transitional Pass-Through Spending in CY 2007 for Drugs, 
Biologicals, and Devices
    In section VI. of this preamble, we discuss the proposed 
methodology for estimating total pass-through spending and whether 
there should be a pro rata reduction for transitional pass-through 
drugs, biologicals, radiopharmaceuticals, and categories of devices for 
CY 2007.
6. Proposed Brachytherapy Payment Changes
    In section VII. of this preamble, we discuss our proposal 
concerning coding and payment for the sources of brachytherapy.
7. Proposed Coding and Payment for Drug and Vaccine Administration
    In section VIII. of this preamble, we discuss our proposed coding 
and payment changes for drug and vaccine administration services.
8. Proposed Hospital Coding for Evaluation and Management (E/M) 
Services
    In section IX. of this preamble, we discuss our proposal for 
developing the coding guidelines for evaluation and management 
services.
9. Proposed Payment for Blood and Blood Products
    In section X. of this preamble, we discuss our proposed payment 
changes for blood and blood products.
10. Proposed Payment for Observation Services
    In section XI. of this preamble, we discuss our proposed criteria 
and coding changes for separately payable observation services.
11. Procedures That Will Be Paid Only as Inpatient Services
    In section XII. of this preamble, we discuss the procedures that we 
propose to remove from the inpatient list and assign to APCs.
12. Proposed Nonrecurring Policy Changes
    In section XIII. of this preamble, we discuss proposed changes to 
certain comprehensive outpatient rehabilitation facility (CORF) 
services paid under the OPPS. In this section, we also discuss proposed 
payment for ultrasound screening for abdominal aortic aneurysms (AAAs).
13. Emergency Medical Screening in Critical Access Hospitals (CAHs)
    In section XIV. of this preamble, we discuss proposed changes to a 
regulation governing emergency medical screening in critical access 
hospitals (CAHs).
14. Proposed OPPS Payment Status and Comment Indicator
    In section XV. of this preamble, we discuss proposed changes to the 
list of status indicators assigned to APCs and present our proposed 
comment indicators for the CY 2007 OPPS final rule.
15. OPPS Policy and Payment Recommendations
    In section XVI. of this preamble, we address recommendations made 
by MedPAC and the APC Panel regarding the OPPS for CY 2007.

[[Page 49514]]

16. Proposed Policies Affecting Ambulatory Surgical Centers (ASCs) for 
CY 2007
    In section XVII. of this preamble we discuss proposed payment 
changes affecting ASCs in CY 2007, the proposed list of updated ASC 
procedures, and proposed modification of the ASC payment adjustment 
process for new technology intraocular lenses (NTIOLs).
17. Proposed Revised Ambulatory Surgical Center (ASC) Payment System 
for Implementation January 1, 2008
    In section XVIII. of this preamble, we discuss our proposal to 
implement a new ASC payment system for services furnished on or after 
January 1, 2008, and the regulatory changes related to the proposed new 
system.
18. Medicare Provider Contractor Reform Mandate
    In section XIX. of this preamble, we discuss proposed changes to 
the regulations under 42 CFR Part 421, Subpart B to conform them to the 
statutory changes required by section 911 of Public Law 108-173 related 
to Medicare contracting reform.
19. Reporting Quality Data for Improved Quality and Costs Under the 
OPPS
    In section XX. of this preamble, we discuss the expenditure growth 
in outpatient hospital services, invite comment on value-based 
purchasing specifically related to hospital outpatient departments, and 
discuss a value-based purchasing program proposal for the CY 2007 OPPS.
20. Promoting Effective Use of Health Information Technology
    In section XXI. of this preamble, we invite comments on promoting 
hospitals' effective use of health information technology.
21. Health Care Information Transparency Initiative
    In section XXII. of this preamble, we discuss HHS' major health 
information transparency initiative which we are launching in 2006.
22. Reporting Hospital Quality Data for Annual Payment Update Under the 
IPPS
    In section XXIII. of this preamble, we invite comment on our 
proposal for the FY 2008 IPPS annual payment update to add the 
HCAHPS[supreg] survey, measures from the Surgical Care Improvement 
Project (SCIP), and Mortality measures to the quality of care measures 
to be used in FY 2007 for purposes of the IPPS annual payment update.
23. Impact Analysis
    In section XXVII. of this preamble, we set forth an analysis of the 
impact that the proposed changes will have on affected entities and 
beneficiaries.

II. Proposed Updates Affecting OPPS Payments for CY 2007

A. Proposed Recalibration of APC Relative Weights for CY 2007

    (If you choose to comment on the issues in this section, please 
include the caption ``APC Relative Weights'' at the beginning of your 
comment.)
1. Database Construction
a. Database Source and Methodology
    Section 1833(t)(9)(A) of the Act requires that the Secretary review 
and revise the relative payment weights for APCs at least annually. In 
the April 7, 2000 OPPS final rule with comment period (65 FR 18482), we 
explained in detail how we calculated the relative payment weights that 
were implemented on August 1, 2000, for each APC group. Except for some 
reweighting due to a small number of APC changes, these relative 
payment weights continued to be in effect for CY 2001. This policy is 
discussed in the November 13, 2000 interim final rule (65 FR 67824 
through 67827).
    We are proposing to use the same basic methodology that we 
described in the April 7, 2000 final rule with comment period to 
recalibrate the APC relative payment weights for services furnished on 
or after January 1, 2007, and before January 1, 2008. That is, we would 
recalibrate the relative payment weights for each APC based on claims 
and cost report data for outpatient services. We are proposing to use 
the most recent available data to construct the database for 
calculating APC group weights. For the purpose of recalibrating APC 
relative payment weights in this proposed rule for CY 2007, we used 
approximately 131.9 million final action claims for hospital OPD 
services furnished on or after January 1, 2005, and before January 1, 
2006. Of the 131.9 million final action claims for services provided in 
hospital outpatient settings, 102.9 million claims were of the type of 
bill potentially appropriate for use in setting rates for OPPS services 
(but did not necessarily contain services payable under the OPPS). Of 
the 102.9 million claims, approximately 48.5 million were not for 
services paid under the OPPS or were excluded as not appropriate for 
use (for example, erroneous cost-to-charge ratios or no HCPCS codes 
reported on the claim). We were able to use 50.7 million whole claims 
of the remaining 54.4 million claims to set the proposed OPPS APC 
relative weights for CY 2007 OPPS. From the 50.7 million whole claims, 
we created 91.4 million single records, of which 62.8 million were 
``pseudo'' single claims (created from multiple procedure claims using 
the process we discuss in this section).
    The proposed APC relative weights and payments for CY 2007 in 
Addenda A and B to this proposed rule were calculated using claims from 
this period that had been processed before January 1, 2006. We selected 
claims for services paid under the OPPS and matched these claims to the 
most recent cost report filed by the individual hospitals represented 
in our claims data. We are proposing that the APC relative weights for 
CY 2007 continue to be based on the median hospital costs for services 
in the APC groups. For the CY 2007 OPPS final rule, we are proposing to 
base APC median costs on claims for services furnished in CY 2005 and 
processed before June 30, 2006.
b. Proposed Use of Single and Multiple Procedure Claims
    For CY 2007, we are proposing to continue to use single procedure 
claims to set the medians on which the APC relative payment weights 
would be based. We have received many requests asking that we ensure 
that the data from claims that contain charges for multiple procedures 
are included in the data from which we calculate the relative payment 
weights. Requesters believe that relying solely on single procedure 
claims to recalibrate APC relative payment weights fails to take into 
account data for many frequently performed procedures, particularly 
those commonly performed in combination with other procedures. They 
believe that, by depending upon single procedure claims, we base 
relative payment weights on the least costly services, thereby 
introducing downward bias to the medians on which the weights are 
based.
    We agree that, optimally, it is desirable to use the data from as 
many claims as possible to recalibrate the APC relative payment 
weights, including those with multiple procedures. We generally use 
single procedure claims to set the median costs for APCs because we 
are, so far, unable to ensure that packaged costs can be appropriately 
allocated across multiple procedures performed on the same date of 
service. However, by bypassing specified codes that we believe do not 
have significant packaged costs, we are able to use more data from 
multiple procedure claims. In many cases, this enables us to create 
multiple ``pseudo'' single claims from claims that, as submitted, 
contained

[[Page 49515]]

multiple separately paid procedures on the same claim. For the CY 2007 
OPPS, we are proposing to use the date of service on the claims and a 
list of codes to be bypassed to create ``pseudo'' single claims from 
multiple procedure claims, as we did in recalibrating the CY 2006 APC 
relative payment weights. We refer to these newly created single 
procedure claims as ``pseudo'' single claims because they were 
submitted by providers as multiple procedure claims.
    For CY 2003, we created ``pseudo'' single claims by bypassing HCPCS 
codes 93005 (Electrocardiogram, tracing), 71010 (Chest x-ray), and 
71020 (Chest x-ray) on a submitted claim. However, we did not use 
claims data for the bypassed codes in the creation of the median costs 
for the APCs to which these three codes were assigned because the level 
of packaging that would have remained on the claim after we selected 
the bypass code was not apparent and, therefore, it was difficult to 
determine if the medians for these codes would be correct.
    For CY 2004, we created ``pseudo'' single claims by bypassing these 
three codes and also by bypassing an additional 269 HCPCS codes in 
APCs. We selected these codes based on a clinical review of the 
services and because it was presumed that these codes had only very 
limited packaging and could appropriately be bypassed for the purpose 
of creating ``pseudo'' single claims. The APCs to which these codes 
were assigned were varied and included mammography, cardiac 
rehabilitation, and Level I plain film x-rays. To derive more 
``pseudo'' single claims, we also split the claims where there were 
dates of service for revenue code charges on that claim that could be 
matched to a single procedure code on the claim on the same date.
    For the CY 2004 OPPS, as in CY 2003, we did not include the claims 
data for the bypassed codes in the creation of the APCs to which the 
269 codes were assigned because, again, we had not established that 
such an approach was appropriate and would aid in accurately estimating 
the median costs for those APCs. For CY 2004, from approximately 16.3 
million otherwise unusable claims, we used approximately 9.5 million 
multiple procedure claims to create approximately 27 million ``pseudo'' 
single claims. For CY 2005, we identified 383 bypass codes and from 
approximately 24 million otherwise unusable claims, we used 
approximately 18 million multiple procedure claims to create 
approximately 52 million ``pseudo'' single claims. For CY 2005, we used 
the claims data for the bypass codes combined with the single procedure 
claims to set the median costs for the bypass codes.
    For CY 2006, we continued using the codes on the CY 2005 OPPS 
bypass list and expanded it to include 404 bypass codes, including 3 
bladder catheterization codes (CPT codes 51701, 51702, and 51703), 
which did not meet the empirical criteria discussed below for the 
selection of bypass codes. We added these three codes to the CY 2006 
bypass list because a decision to change their payment status from 
packaged to separately paid would have resulted in a reduction of the 
number of single bills on which we could base median costs for other 
major separately paid procedures that were billed on the same claim 
with these three procedure codes. That is, single bills which contained 
other procedures would have become multiple procedure claims when these 
bladder catheterization codes were converted to separately paid status. 
We believed and continue to believe that bypassing these three codes 
does not adversely affect the medians for other procedures because we 
believe that when these services are performed on the same day as 
another separately paid service, any packaging that appears on the 
claim would be appropriately associated with the other procedure and 
not with these codes.
    Consequently, for CY 2006, we identified 404 bypass codes for use 
in creating ``pseudo'' single claims and used some part of 90 percent 
of the total claims that were eligible for use in OPPS ratesetting and 
modeling in developing the final rule with comment period. This process 
enabled us to use, for CY 2006 OPPS, 88 million single bills for 
ratesetting: 55 million ``pseudo'' singles and 34 million ``natural'' 
single bills (bills that were submitted containing only one separately 
payable major HCPCS code). (These numbers do not sum to 88 million 
because more than 800,000 single bills were removed when we trimmed at 
the HCPCS level at +/-3 standard deviations from the geometric mean.)
    For CY 2007, we are proposing to continue using date-of-service 
matching as a tool for creation of ``pseudo'' single claims and to 
continue the use of a bypass list to create ``pseudo'' single claims. 
The process we are proposing for CY 2007 OPPS results in our being able 
to use some part of 94.8 percent of the total claims that are eligible 
for use in the OPPS ratesetting and modeling in developing this 
proposed rule. This process enabled us to use, for CY 2007, 62.8 
million ``pseudo'' singles and 29.6 million ``natural'' single bills.
    We are proposing to bypass the 454 codes identified in Table 1 to 
create new single claims and to use the line-item costs associated with 
the bypass codes on these claims, together with the single procedure 
claims, in the creation of the median costs for the APCS into which 
they are assigned. Of the codes on this list, 404 codes were used for 
bypass in CY 2006. We are proposing to continue the use of the codes on 
the CY 2006 OPPS bypass list and to expand it by adding codes that, 
using data presented to the APC Panel at its March 2006 meeting, meet 
the same empirical criteria as those used in CY 2006 to create the 
bypass list, or which our clinicians believe would contain minimal 
packaging if the services were correctly coded (for example, ultrasound 
guidance). Our examination of the data against the criteria for 
inclusion on the bypass list, as discussed below for the addition of 
new codes, shows that the empirically selected codes used for bypass 
for the CY 2006 OPPS generally continue to meet the criteria or come 
very close to meeting the criteria, and we have received no comments 
against bypassing them.
    To facilitate comment, Table 1 indicates the list of codes we are 
proposing to bypass for creation of ``pseudo'' singles for CY 2007 
OPPS. Bypass codes shown in Table 1 with an asterisk indicate the HCPCS 
codes we are proposing to add to the CY 2006 OPPS listed codes for 
bypass in CY 2007. The criteria we are proposing to use to determine 
the additional codes to add to the CY 2006 OPPS bypass list in order to 
create the bypass list for CY 2007 OPPS are discussed below.
    The following empirical criteria were developed by reviewing the 
frequency and magnitude of packaging in the single claims for payable 
codes other than drugs and biologicals. We assumed that the 
representation of packaging on the single claims for any given code is 
comparable to packaging for that code in the multiple claims:
     There were 100 or more single claims for the code. This 
number of single claims ensured that observed outcomes were 
sufficiently representative of packaging that might occur in the 
multiple claims.
     Five percent or fewer of the single claims for the code 
had packaged costs on that single claim for the code. This criterion 
results in limiting the amount of packaging being redistributed to the 
payable procedure remaining on the claim after the bypass code is 
removed and ensures that the costs associated with the bypass code 
represent the cost of the bypassed service.

[[Page 49516]]

     The median cost of packaging observed in the single claim 
was equal to or less than $50. This limits the amount of error in 
redistributed costs.
     The code is not a code for an unlisted service.
    In addition, we are proposing to add to the bypass list codes that 
our clinicians believe contain minimal packaging and codes for 
specified drug administration for which hospitals have requested 
separate payment but for which it is not possible to acquire median 
costs unless we add these codes to the bypass list. A more complete 
discussion of the effects of adding these drug administration codes to 
the bypass list is contained in the discussion of drug administration 
in section VIII.C. of this preamble.
    We specifically invite public comment on the ``pseudo'' single 
process, including the bypass list and the criteria.

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[[Page 49528]]

c. Proposed Revision to the Overall Cost-to-Charge Ratio (CCR) 
Calculation
    We calculate both an overall CCR and cost center-specific cost-to-
charge ratios (CCRs) for each hospital. For CY 2007 OPPS, we are 
proposing to change the methodology for calculating the overall CCR. 
The overall CCR is used in many components of the OPPS. We use the 
overall CCR to estimate costs from charges on a claim when we do not 
have an accurate cost center CCR. This does not happen very often. For 
the vast majority of services, we are able to use a cost center CCR to 
estimate costs from charges. However, we also use the overall CCR to 
identify the outlier threshold, to model payments for services that are 
paid at charges reduced to cost, and, during implementation, to 
determine outlier payments and payments for other services.
    We have discovered that the calculation of the overall CCR that the 
fiscal intermediaries are using to determine outlier payment and 
payment for services paid at charges reduced to cost differs from the 
overall CCR that we use to model the OPPS. In Program Transmittal A-03-
04 on ``Calculating Provider-Specific Outpatient Cost-to-Charge Ratios 
(CCRs) and Instructions on Cost Report Treatment of Hospital Outpatient 
Services Paid on a Reasonable Cost Basis'' (January 17, 2003), we 
revised the overall CCR calculation that the fiscal intermediaries use 
in determining outlier and other cost payments. Until this point, each 
fiscal intermediary had used an overall CCR provided by CMS, or 
calculated an updated CCR at the provider's request using the same 
calculation. The calculation in Program Transmittal A-03-04, that is, 
the fiscal intermediary calculation, diverged from the ``traditional'' 
overall CCR that we used for modeling. It should be noted that the 
fiscal intermediary overall CCR calculation noted in Program 
Transmittal A-03-04 was created with feedback and input from the fiscal 
intermediaries.
    CMS' ``traditional'' calculation consists of summing the total 
costs from Worksheet B, Part I (Column 27), after removing the costs 
for nursing and paramedical education (Columns 21 and 24), for those 
ancillary cost centers that we believe contain most OPPS services, 
summing the total charges from Worksheet C, Part I (Columns 6 and 7) 
for the same set of ancillary cost centers, and dividing the former by 
the later. We exclude selected ancillary cost centers from our overall 
CCR calculation, such as 5700 Renal Dialysis, because we believe that 
the costs and charges in these cost centers are largely paid for under 
other payment systems. The specific list of ancillary cost centers, 
both standard and nonstandard, included in our overall CCR calculation 
is available on our Web site in the revenue center-to-cost center 
crosswalk workbook: http://www.cms.hhs.gov/HospitalOutpatientPPS.

    The overall CCR calculation provided in Program Transmittal A-03-
04, on the other hand, takes the CCRs from Worksheet C, Part I, Column 
9, for each specified ancillary cost center; multiplies them by the 
Medicare Part B outpatient specific charges in each corresponding 
ancillary cost center from Worksheet D, Parts V and VI (Columns 2, 3, 
4, and 5 and subscripts thereof); and then divides the sum of these 
costs by the sum of charges for the specified ancillary cost centers 
from Worksheet D, Parts V and VI (Columns 2, 3, 4, and 5 and subscripts 
thereof). Compared with our ``traditional'' overall CCR calculation 
that has been used for modeling OPPS and to calculate the median costs, 
this fiscal intermediary calculation of overall CCR fails to remove 
allied health costs and adds weighting by Medicare Part B charges.
    In comparing these two calculations, we discovered that, on 
average, the overall CCR calculation being used by the fiscal 
intermediary resulted in higher overall CCRs than under our 
``traditional'' calculation. Using the most recent cost report data 
available for every provider with valid claims for CY 2004 as of 
November 2005, we estimated the median overall CCR using the 
traditional calculation to be 0.3040 (mean 0.3223) and the median 
overall CCR using the fiscal intermediary calculation to be 0.3309 
(mean 0.3742). There also was much greater variability in the fiscal 
intermediary calculation of the overall CCR. The standard deviation 
under the ``traditional'' calculation was 0.1318, while the standard 
deviation using the fiscal intermediary's calculation was 0.2143. In 
part, the higher median estimate for the fiscal intermediary 
calculation is attributable to the inclusion of allied health costs for 
the over 700 hospitals with allied health programs. It is inappropriate 
to include these costs in the overall CCR calculation, because CMS 
already reimburses hospitals for the costs of these programs through 
cost report settlement. The higher median estimate and greater 
variability also is a function of the weighting by Medicare Part B 
charges. Because the fiscal intermediary overall CCR calculation is 
higher, on average, CMS has underestimated the outlier payment 
thresholds and, therefore, overpaid outlier payments. We also have 
underestimated spending for services paid at charges reduced to cost in 
our budget neutrality estimates.
    In examining the two different calculations, we decided that 
elements of each methodology had merit. Clearly, as noted above, allied 
health costs should not be included in an overall CCR calculation. 
However, weighting by Medicare Part B charges from Worksheet D, Parts V 
and VI, makes the overall CCR calculation more specific to OPPS. 
Therefore, we are proposing to adopt a single overall CCR calculation 
that incorporates weighting by Medicare Part B charges but excludes 
allied health costs for modeling and payment. Specifically, the 
proposed calculation removes allied health costs from cost center CCR 
calculations for specified ancillary cost centers, as discussed above, 
multiplies them by the Medicare Part B charges on Worksheet D, Parts V 
and VI, and sums these estimated Medicare costs. This sum is then 
divided by the sum of the same Medicare Part B charges for the same 
specified set of ancillary cost centers.
    Using the same cost report data, we estimated a median overall CCR 
for the proposed calculation of 0.3081 (mean 0.3389) with a standard 
deviation of 0.1583. The similarity to the median and standard 
deviation of the ``traditional'' overall CCR calculation noted above 
(median 0.3040 and standard deviation of 0.1318) masks some sizeable 
changes in overall CCR calculations for specific hospitals due largely 
to the inclusion of Medicare Part B weighting.
    In order to isolate the overall impact of adopting this methodology 
on APC medians, we used the first 9 months of CY 2005 claims data to 
estimate APC median costs varying only the two methods of determining 
overall CCR. We expected the impact to be limited because the majority 
of costs are estimated using a cost center-specific CCR and not the 
overall. As predicted, we observed minor changes in APC median costs 
from the adoption of the proposed overall CCR calculation. We largely 
observed differences of no more than 5 percent in either direction. The 
median overall percent change in APC cost estimates was -0.3 percent. 
We typically observe comparable changes in APC medians when we update 
our cost report data. The impact of the proposed CCR calculation on the 
outlier threshold is discussed further in section II. G. of this 
preamble. Using updated cost report data for the calculations in this 
proposed rule, we estimate a median overall CCR across all hospitals of 
0.2999 using the proposed overall CCR calculation.

[[Page 49529]]

    We believe that a single overall CCR calculation should be used for 
all components of the OPPS for both modeling and payment. Therefore, we 
are proposing to use the modified overall CCR calculation as discussed 
above when the hospital-specific overall CCR is used for any of the 
following calculations--in the CMS calculation of median costs for OPPS 
ratesetting, in the CMS calculation of the outlier threshold, in the 
fiscal intermediary calculation of outlier payments, in the CMS 
calculation of statewide CCRs, in the fiscal intermediary calculation 
of pass-through payments for devices, and for any other fiscal 
intermediary payment calculation in which the current hospital-specific 
overall CCR may be used now or in the future. If this proposal is 
finalized, we would issue a Medicare program instruction to fiscal 
intermediaries that would instruct them to recalculate and use the 
hospital-specific overall CCR as we are proposing for these purposes.
2. Proposed Calculation of Median Costs for CY 2007
    In this section of the preamble, we discuss the use of claims to 
calculate the proposed OPPS payment rates for CY 2007. The hospital 
outpatient prospective payment page on the CMS Web site on which this 
proposed rule is posted provides an accounting of claims used in the 
development of the proposed rates: http://www.cms.hhs.gov/HospitalOutpatientPPS.
 The accounting of claims used in the development 

of this proposed rule is included on the Web site under supplemental 
materials for the CY 2007 proposed rule. That accounting provides 
additional detail regarding the number of claims derived at each stage 
of the process. In addition, below we discuss the files of claims that 
comprise the data sets that are available for purchase under a CMS data 
user contract. Our CMS Web site, http://www.cms.hhs.gov/HospitalOutpatientPPS
, includes information about purchasing the 

following two OPPS data files: ``OPPS Limited Data Set'' and ``OPPS 
Identifiable Data Set.''
    We are proposing to use the following methodology to establish the 
relative weights to be used in calculating the proposed OPPS payment 
rates for CY 2007 shown in Addenda A and B to this proposed rule. This 
methodology is as follows:
    We used outpatient claims for the full CY 2005, processed before 
January 1, 2006, to set the relative weights for this proposed rule for 
CY 2007. To begin the calculation of the relative weights for CY 2007, 
we pulled all claims for outpatient services furnished in CY 2005 from 
the national claims history file. This is not the population of claims 
paid under the OPPS, but all outpatient claims (including, for example, 
CAH claims, and hospital claims for clinical laboratory services for 
persons who are neither inpatients nor outpatients of the hospital).
    We then excluded claims with condition codes 04, 20, 21, and 77. 
These are claims that providers submitted to Medicare knowing that no 
payment will be made. For example, providers submit claims with a 
condition code 21 to elicit an official denial notice from Medicare and 
document that a service is not covered. We then excluded claims for 
services furnished in Maryland, Guam, and the U.S. Virgin Islands 
because hospitals in those geographic areas are not paid under the 
OPPS.
    We divided the remaining claims into the three groups shown below. 
Groups 2 and 3 comprise the 103 million claims that contain hospital 
bill types paid under the OPPS.
    1. Claims that were not bill types 12X, 13X, 14X (hospital bill 
types), or 76X (CMHC bill types). Other bill types are not paid under 
the OPPS and, therefore, these claims were not used to set OPPS 
payment.
    2. Claims that were bill types 12X, 13X, or 14X (hospital bill 
types). These claims are hospital outpatient claims.
    3. Claims that were bill type 76X (CMHC). (These claims are later 
combined with any claims in item 2 above with a condition code 41 to 
set the per diem partial hospitalization rate determined through a 
separate process.)
    For the CCR calculation process, we used the same general approach 
as we used in developing the final APC rates for CY 2006 (70 FR 68537), 
with a change to the development of the overall CCR as discussed above. 
That is, we first limited the population of cost reports to only those 
for hospitals that filed outpatient claims in CY 2005 before 
determining whether the CCRs for such hospitals were valid.
    We then calculated the CCRs at a cost center level and overall for 
each hospital for which we had claims data. We did this using hospital-
specific data from the Healthcare Cost Report Information System 
(HCRIS). We used the most recent available cost report data, in most 
cases, cost reports for CY 2004. For this proposed rule, we used the 
most recent cost report available, whether submitted or settled. If the 
most recent available cost report was submitted but not settled, we 
looked at the last settled cost report to determine the ratio of 
submitted to settled cost using the overall CCR, and we then adjusted 
the most recent available submitted but not settled cost report using 
that ratio. We are proposing to use the most recently submitted cost 
reports to calculate the CCRs to be used to calculate median costs for 
the OPPS CY 2007 final rule. We calculated both an overall CCR and cost 
center-specific CCRs for each hospital. We used the proposed overall 
CCR calculation discussed in II.A.1.c. of this preamble for all 
purposes.
    We then flagged CAH claims, which are not paid under the OPPS, and 
claims from hospitals with invalid CCRs. The latter included claims 
from hospitals without a CCR; those from hospitals paid an all-
inclusive rate; those from hospitals with obviously erroneous CCRs 
(greater than 90 or less than .0001); and those from hospitals with 
CCRs that were identified as outliers (3 standard deviations from the 
geometric mean after removing error CCRs). In addition, we trimmed the 
CCRs at the cost center level by removing the CCRs for each cost center 
as outliers if they exceeded +/-3 standard deviations from the 
geometric mean. This is the same methodology that we used in developing 
the final CY 2006 CCRs. For CY 2007, we are proposing to trim at the 
departmental CCR level to eliminate aberrant CCRs that, if found in 
high volume hospitals, could skew the medians. We used a four-tiered 
hierarchy of cost center CCRs to match a cost center to every possible 
revenue code appearing in the outpatient claims, with the top tier 
being the most common cost center and the last tier being the default 
CCR. If a hospital's cost center CCR was deleted by trimming, we set 
the CCR for that cost center to ``missing,'' so that another cost 
center CCR in the revenue center hierarchy could apply. If no other 
departmental CCR could apply to the revenue code on the claim, we used 
the hospital's overall CCR for the revenue code in question. For 
example, a visit reported under the clinic revenue code, but the 
hospital did not have a clinic cost center, we mapped the hospital-
specific overall CCR to the clinic revenue code. The hierarchy of CCRs 
is available for inspection and comment at the CMS Web site: http://www.cms.hhs.gov/HospitalOutpatientPPS
.

    We then converted the charges to costs on each claim by applying 
the CCR that we believed was best suited to the revenue code indicated 
on the line with the charge. Table 2 below contains a list of the 
allowed revenue codes. Revenue codes not included in Table 2 are those

[[Page 49530]]

not allowed under the OPPS because their services cannot be paid under 
the OPPS (for example, inpatient room and board charges) and, thus 
charges with those revenue codes were not packaged for creation of the 
OPPS median costs. One exception is the calculation of median blood 
costs, as discussed in section X. of this preamble.
    Thus, we applied CCRs as described above to claims with bill types 
12X, 13X, or 14X, excluding all claims from CAHs and hospitals in 
Maryland, Guam, and the U.S. Virgin Islands, and claims from all 
hospitals for which CCRs were flagged as invalid.
    We identified claims with condition code 41 as partial 
hospitalization services of hospitals and moved them to another file. 
These claims were combined with the 76X claims identified previously to 
calculate the partial hospitalization per diem rate.
    We then excluded claims without a HCPCS code. We also moved claims 
for observation services to another file. We moved to another file 
claims that contained nothing but flu and pneumococcal pneumonia 
(``PPV'') vaccine. Influenza and PPV vaccines are paid at reasonable 
cost and, therefore, these claims are not used to set OPPS rates. We 
note that the two above mentioned separate files containing partial 
hospitalization claims and the observation services claims are included 
in the files that are available for purchase as discussed above.
    We next copied line-item costs for drugs, blood, and devices (the 
lines stay on the claim, but are copied off onto another file) to a 
separate file. No claims were deleted when we copied these lines onto 
another file. These line-items are used to calculate a per unit mean 
and median and a per administration mean and median for drugs, 
radiopharmaceutical agents, blood and blood products, and devices, 
including but not limited to brachytherapy sources, as well as other 
information used to set payment rates, including a unit to day ratio 
for drugs.
    We then divided the remaining claims into the following five 
groups:
    1. Single Major Claims: Claims with a single separately payable 
procedure (that is, status indicator S, T, V, or X), all of which would 
be used in median setting.
    2. Multiple Major Claims: Claims with more than one separately 
payable procedure (that is, status indicator S, T, V, or X), or 
multiple units for one payable procedure. As discussed below, some of 
these can be used in median setting.
    3. Single Minor Claims: Claims with a single HCPCS code that is 
packaged (that is, status indicator N) and not separately payable.
    4. Multiple Minor Claims: Claims with multiple HCPCS codes that are 
packaged (that is, status indicator N) and not separately payable.
    5. Non-OPPS Claims: Claims that contain no services payable under 
the OPPS (that is, all status indicators other than S, T, V, X, or N). 
These claims are excluded from the files used for the OPPS. Non-OPPS 
claims have codes paid under other fee schedules, for example, durable 
medical equipment or clinical laboratory, and do not contain either a 
code for a separately paid service or a code for a packaged service.
    In previous years, we made a determination of whether each HCPCS 
code was a major code, or a minor code, or a code other than a major or 
minor code. We used those code specific determinations to sort claims 
into these five identified groups. For CY 2007 OPPS, we are proposing 
to use status indicators, as described above, to sort the claims into 
these groups. We believe that using status indicators is an appropriate 
way to sort the claims into these groups and also to make our process 
more transparent to the public. We further believe that this proposed 
method of sorting claims will enhance the public's ability to derive 
useful information and become a more informed commenter on this 
proposed rule.
    We note that the claims listed in numbers 1, 2, 3, and 4 above are 
included in the data files that can be purchased as described above.
    We set aside the single minor, multiple minor claims and the non-
OPPS claims (numbers 3, 4, and 5 above) because we did not use these 
claims in calculating median cost. We then examined the multiple major 
claims for date of service to determine if we could break them into 
single procedure claims using the dates of service on all lines on the 
claim. If we could create claims with single major procedures by using 
date of service, we created a single procedure claim record for each 
separately paid procedure on a different date of service (that is, a 
``pseudo'' single).
    We then used the ``bypass codes'' listed in Table 1 of this 
preamble and discussed in section II.A.1.b. to remove separately 
payable procedures that we determined contain limited costs or no 
packaged costs, or were otherwise suitable for inclusion on the bypass 
list, from a multiple procedure bill. When one of the two separately 
payable procedures on a multiple procedure claim was on the bypass code 
list, we split the claim into two single procedure claims records. The 
single procedure claim record that contained the bypass code did not 
retain packaged services. The single procedure claim record that 
contained the other separately payable procedure (but no bypass code) 
retained the packaged revenue code charges and the packaged HCPCS 
charges.
    We also removed lines that contained multiple units of codes on the 
bypass list and treated them as ``pseudo'' single claims by dividing 
the cost for the multiple units by the number of units on the line. 
Where one unit of a single separately paid procedure code remained on 
the claim after removal of the multiple units of the bypass code, we 
created a ``pseudo'' single claim from that residual claim record, 
which retained the costs of packaged revenue codes and packaged HCPCS 
codes. This enables us to use claims that would otherwise be multiple 
procedure claims and could not be used. We excluded those claims that 
we were not able to convert to singles even after applying all of the 
techniques for creation of ``pseudo'' singles.
    We then packaged the costs of packaged HCPCS codes (codes with 
status indicator ``N'' listed in Addendum B to this proposed rule) and 
packaged revenue codes into the cost of the single major procedure 
remaining on the claim. The list of packaged revenue codes is shown 
below in Table 2.
    After removing claims for hospitals with error CCRs, claims without 
HCPCS codes, claims for immunizations not covered under the OPPS, and 
claims for services not paid under the OPPS, 97.5 million claims were 
left. Of these 97.5 million claims, we were able to use some portion of 
50.7 million whole claims (93.2 percent of the 54.4 million potentially 
usable claims) to create the 91.4 million single and ``pseudo'' single 
claims for use in the CY 2007 median payment ratesetting. Approximately 
43 million claims were for services not paid under the OPPS.
    We also excluded (1) Claims that had zero costs after summing all 
costs on the claim and (2) claims containing payment flag 3. Effective 
for services furnished on or after July 1, 2004, the Outpatient Code 
Editor (OCE) assigns payment flag number 3 to claims on which hospitals 
submitted token charges for a service with status indicator ``S'' or 
``T'' (a major separately paid service under OPPS) for which the fiscal 
intermediary is required to allocate the sum of charges for services 
with a status indicator equaling ``S'' or ``T'' based on the weight for 
the APC to which each code is assigned. We do not believe that these 
charges, which were token charges as submitted by the

[[Page 49531]]

hospital, are valid reflections of hospital resources. Therefore, we 
are proposing to delete these claims. We also deleted claims for which 
the charges equal the revenue center payment (that is, the Medicare 
payment) on the assumption that where the charge equals the payment, to 
apply a CCR to the charge would not yield a valid estimate of relative 
provider cost.
    For the remaining claims, we then standardized 60 percent of the 
costs of the claim (which we have previously determined to be the 
labor-related portion) for geographic differences in labor input costs. 
We made this adjustment by determining the wage index that applied to 
the hospital that furnished the service and dividing the cost for the 
separately paid HCPCS code furnished by the hospital by that wage 
index. As has been our policy since the inception of the OPPS, we are 
proposing to use the pre-reclassified wage indices for standardization 
because we believe that they better reflect the true costs of items and 
services in the area in which the hospital is located than the post-
reclassification wage indices, and would result in the most accurate 
adjusted median costs.
    We also excluded claims that were outside 3 standard deviations 
from the geometric mean of units for each HCPCS code on the bypass list 
(because, as discussed above, we used claims that contain multiple 
units of the bypass codes). We then deleted 299,022 single bills 
reported with modifier 50 that were assigned to APCs that contained 
HCPCS codes that are considered to be conditional or independent 
bilateral procedures under the OPPS and that are subject to special 
payment provisions implemented through the OCE. Modifier 50 signifies 
that the procedure was performed bilaterally. Although these are 
apparently single claims for a separately payable service and although 
there is only one unit of the code reported on the claim, the presence 
of modifier 50 signifies that two services were furnished. Therefore, 
costs reported on these claims are for two procedures and not for a 
single procedure. Hence, we deleted these multiple procedure records, 
which we would have treated as single procedure claims in prior OPPS 
updates. We are seeking comments on the relative benefits of deleting 
these claims versus dividing the costs for the two procedures by two to 
create two ``pseudo'' single claims.
    We used the remaining claims to calculate median costs for each 
separately payable HCPCS code and each APC. The comparison of HCPCS and 
APC medians determines the applicability of the ``2 times'' rule. As 
stated previously, section 1833(t)(2) of the Act provides that, subject 
to certain exceptions, the items and services within an APC group 
cannot be considered comparable with respect to the use of resources if 
the highest median (or mean cost, if elected by the Secretary) for an 
item or service in the group is more than 2 times greater than the 
lowest median cost for an item or service within the same group (``the 
2 times rule''). Finally, we reviewed the medians and reassigned HCPCS 
codes to different APCs as deemed appropriate. Section III.B. of this 
preamble includes a discussion of the HCPCS code assignment changes 
that resulted from examination of the medians and for other reasons. 
The APC medians were recalculated after we reassigned the affected 
HCPCS codes. Both the HCPCS medians and the APC medians were weighted 
to account for the inclusion of multiple units of the bypass codes in 
the creation of pseudo single bills.
    A detailed discussion of the proposed medians for blood and blood 
products is included in section X. of this preamble. A discussion of 
the proposed medians for APCs that require one or more devices when the 
service is performed is included in section IV.A. of this preamble. A 
discussion of the proposed median for observation services is included 
in section XI. of this preamble and a discussion of the proposed median 
for partial hospitalization is included below in section II.B. of this 
preamble.

BILLING CODE 4120-01-P

[[Page 49532]]

[GRAPHIC] [TIFF OMITTED] TP23AU06.011

BILLING CODE 4120-01-C

[[Page 49533]]

3. Proposed Calculation of Scaled OPPS Payment Weights
    Using the median APC costs discussed previously, we calculated the 
proposed relative payment weights for each APC for CY 2007 shown in 
Addenda A and B of this proposed rule. In prior years, we scaled all 
the relative payment weights to APC 0601 (Mid Level Clinic Visit) 
because it is one of the most frequently performed services in the 
hospital outpatient setting. We assigned APC 0601 a relative payment 
weight of 1.00 and divided the median cost for each APC by the median 
cost for APC 0601 to derive the relative payment weight for each APC.
    For CY 2007 OPPS, we are proposing to scale all of the relative 
payment weights to APC 0606 (Level III Clinic Visits) because we are 
proposing to delete APC 0601 as part of the reconfiguration of the 
visit APCs. We chose APC 0606 as the scaling base because under our 
proposal to reconfigure the APCs where clinic visits are assigned for 
CY 2007, APC 0606 is the middle level clinic visit APC (that is, Level 
III of five levels). We have historically used the median cost of the 
middle level clinic visit APC (that is APC 0601 through CY 2006) to 
calculate unscaled weights because mid-level clinic visits are among 
the most frequently performed services in the hospital outpatient 
setting. Therefore, to maintain consistency in using as a median the 
most frequently used services, we are proposing to continue to use the 
median cost of the middle clinic level, proposed ASC 0606, to calculate 
unscaled weights. Following our standard methodology, but using the 
proposed CY 2007 median for APC 0606, we assigned APC 0606 a relative 
payment weight of 1.00 and divided the median cost of each APC by the 
median cost for APC 0606 to derive the unscaled relative payment weight 
for each APC. The choice of the APC on which to base the relative 
weights for all other APCs does not affect the payments made under the 
OPPS because we scale the weights for budget neutrality.
    Section 1833(t)(9)(B) of the Act requires that APC reclassification 
and recalibration changes, wage index changes, and other adjustments be 
made in a manner that assures that aggregate payments under the OPPS 
for CY 2007 are neither greater than nor less than the aggregate 
payments that would have been made without the changes. To comply with 
this requirement concerning the APC changes, we compared aggregate 
payments using the CY 2006 relative weights to aggregate payments using 
the CY 2007 proposed relative payment weights. Based on this 
comparison, we adjusted the relative weights for purposes of budget 
neutrality. The unscaled relative payment weights were adjusted by 
1.354626473 for budget neutrality. We recognize the scaler, or weight 
scaling factor, for budget neutrality that we are proposing for CY 2007 
is higher than any previous OPPS weight scaler as a result of our 
proposal to use APC 0606 as the base for calculation of relative 
weights. Our proposed use of the median cost for APC 0606 of $83.67 
causes the unscaled weights to be lower than they would have been if we 
had chosen APC 0605 (Level 2 Clinic Visits; median $62.12) as the 
scaling base. The CY 2007 median cost of APC 0606 is significantly 
higher than the CY 2006 median cost of APC 0601 for mid-level clinic 
visits, which was used in CY 2006 and earlier years to calculate 
unscaled weights. Historically, the median cost for APC 0601 has been 
similar to the CY 2007 proposed median cost for APC 0605. In order to 
appropriately scale the total weight estimated for OPPS in CY 2007 to 
be similar to the total weight in OPPS for CY 2006, we calculated a 
scaler of 1.354626473, which is higher using APC 0606 as the base than 
it would be if we used APC 0605 as the base. In addition to adjusting 
for increases and decreases in weight due the recalibration of APC 
medians, the scaler also accounts for any change in the base.
    The proposed relative payment weights listed in Addenda A and B of 
this proposed rule incorporate the recalibration adjustments discussed 
in sections II.A.1. and 2. of this preamble.
    Section 1833(t)(14)(H) of the Act, as added by section 621(a)(1) of 
Pub. L. 108-173, states that ``Additional expenditures resulting from 
this paragraph shall not be taken into account in establishing the 
conversion factor, weighting and other adjustment factors for 2004 and 
2005 under paragraph (9) but shall be taken into account for subsequent 
years.'' Section 1833(t)(14) of the Act provides the payment rates for 
certain ``specified covered outpatient drugs.'' Therefore, the cost of 
those specified covered outpatient drugs (as discussed in section V. of 
this preamble) is now included in the budget neutrality calculations 
for CY 2007 OPPS.
    Under section 1833(t)(16)(C) of the Act, as added by section 
621(b)(1) of Pub. L. 108-173, payment for devices of brachytherapy 
consisting of a seed or seeds (or radioactive source) is to be made at 
charges adjusted to cost for services furnished on or after January 1, 
2004, and before January 1, 2007. As we stated in our January 6, 2004 
interim final rule, charges for the brachytherapy sources were not used 
in determining outlier payments, and payments for these items were 
excluded from budget neutrality calculations for the CY 2006 OPPS. We 
excluded these payments from budget neutrality calculations, in part, 
because of the challenge posed by estimating hospital-specific cost 
payment. For CY 2007, we are proposing a specific payment rate for 
brachytherapy sources, which will be subject to scaling for budget 
neutrality. (We provide a discussion of brachytherapy payment issues, 
including their continued exclusion from outlier payments, under 
section VII. of this preamble.) Therefore, the costs of brachytherapy 
sources are accounted for in the scaler of 1.354626473.
4. Proposed Changes to Packaged Services
    (If you choose to comment on the issues in this section, please 
include the caption ``Packaged Services'' at the beginning of your 
comment.)
    Payments for packaged services under the OPPS are bundled into the 
payments providers receive for separately payable services provided on 
the same day. Packaged services are identified by the status indicator 
``N.'' Hospitals include charges for packaged services on their claims, 
and the costs associated with these packaged services are then bundled 
into the costs for separately payable procedures on those same claims 
in establishing payment rates for the separately payable services. This 
is consistent with the principles of a prospective payment system based 
upon groupings of services and in contrast to a fee schedule that 
provides individual payment for each service billed. Hospitals may use 
CPT codes to report any packaged services that were performed, 
consistent with CPT coding guidelines.
    As a result of requests from the public, a Packaging Subcommittee 
to the APC Panel was established to review all the procedural CPT codes 
with a status indicator of ``N.'' Providers have often suggested that 
many packaged services could be provided alone, without any other 
separately payable services on the claim, and requested that these 
codes not be assigned status indicator ``N.'' In deciding whether to 
package a service or pay for a code separately, we consider a variety 
of factors, including whether the service is normally provided 
separately or in conjunction with other services; how likely it is for 
the costs of the packaged code to be appropriately mapped to the 
separately payable codes

[[Page 49534]]

with which it was performed; and whether the expected cost of the 
service is relatively low.
    The Packaging Subcommittee identified areas for change for some 
packaged CPT codes that it believed could frequently be provided to 
patients as the sole service on a given date and that required 
significant hospital resources as determined from hospital claims data.
    Based on the comments received, additional issues, and new data 
that we shared with the Packaging Subcommittee concerning the packaging 
status of codes for CY 2007, the Packaging Subcommittee reviewed the 
packaging status of numerous HCPCS codes and reported its findings to 
the APC Panel at its March 2006 meeting. The APC Panel accepted the 
report of the Packaging Subcommittee, heard several presentations on 
certain packaged services, discussed the deliberations of the Packaging 
Subcommittee, and recommended that--
     CMS pay separately for HCPCS code 0069T (Acoustic heart 
sound recording and computer analysis only).
     CMS maintain the packaged status of HCPCS code 0152T 
(Computer aided detection with further physician review for 
interpretation, with or without digitization of films radiographic 
images; chest radiograph(s)).
     CMS maintain the packaged status of CPT code 36500 (venous 
catheterization for selective blood organ sampling).
     CMS pay separately for CPT code 36540 (Collect blood, 
venous access device) if there are no separately payable OPPS services 
on the claim.
     CMS pay separately for CPT code 36600 (Arterial puncture; 
withdrawal of blood for diagnosis) if there are no separately payable 
OPPS services on the claim.
     CMS pay separately for CPT code 38792 (Sentinel node 
identification) if there are no separately payable OPPS services on the 
claim.
     CMS maintain the packaged status of CPT codes 74328 
(Endoscopic catheterization of the biliary ductal system, radiological 
supervision and interpretation), 74329 (Endoscopic catheterization of 
the pancreatic ductal system, radiological supervision and 
interpretation), and 74330 (Combined endoscopic catheterization of the 
biliary and pancreatic ductal systems, radiological supervision and 
interpretation).
     CMS pay separately for CPT code 75893 (Venous sampling 
through catheter, with or without angiography, radiological supervision 
and interpretation) if there are no separately payable OPPS services on 
the claim.
     CMS continue to separately pay for CPT code 76000 
(Fluoroscopy, up to one hour physician time).
     CMS maintain the packaged status of CPT codes 76001 
(Fluoroscopy, physician time more than one hour), 76003 ((Fluoroscopic 
guidance for needle placement), and 76005 (Fluoroscopic guidance and 
localization of needle or catheter tip).
     CMS maintain the packaged status of CPT codes 76937 
(Ultrasound guidance for vascular access) and 75998 (Fluoroscopic 
guidance for central venous access device placement, replacement, or 
removal).
     CMS provide separate payment for CPT codes 94760 
(Noninvasive ear or pulse oximetry for oxygen saturation; single 
determination), 94761 (Noninvasive ear or pulse oximetry for oxygen 
saturation; multiple determinations), and 94762 (Noninvasive ear or 
pulse oximetry for oxygen saturation by continuous overnight 
monitoring) if there are no separately payable OPPS services on the 
claim.
     CMS pay separately for CPT code 96523 (Irrigation of 
implanted venous access device) if there are no separately payable OPPS 
services on the claim.
     CMS maintain the packaged status of HCPCS code G0269 
(Placement of occlusive device into either a venous or arterial access 
site).
     CMS pay separately for HCPCS code P9612 (Catheterization 
for collection of specimen, single patient) if there are no separately 
payable OPPS services on the claim.
     CMS bring data to the next APC Panel meeting that show the 
following: (a) how the costs of packaged items and services are 
incorporated into the median costs of APCs and (b) how the costs of 
these packaged items and services influence payments for associated 
procedures.
     The Packaging Subcommittee continue until the next APC 
Panel meeting.
    For CY 2007, we are proposing to maintain CPT code 0069T as a 
packaged service and not adopt the APC Panel's recommendation to pay 
separately for this code. The service uses signal processing technology 
to detect, interpret, and document acoustical activities of the heart 
through special sensors applied to a patient's chest. This code was a 
new Category III CPT code implemented in the CY 2005 OPPS and assigned 
a new interim status indicator of ``N'' in the CY 2005 OPPS final rule. 
The APC Panel recommended packaging CPT code 0069T for CY 2006, and we 
accepted that recommendation when we finalized the status indicator 
``N'' assignment to 0069T for CY 2006. This code is indicated as an 
add-on code to an electrocardiography service, according to the AMA's 
CY 2006 CPT book. In its presentation to the APC Panel, the 
manufacturer requested that we pay separately for CPT code 0069T and 
assign it to APC 0099 (Electrocardiograms), based on its estimated cost 
and clinical characteristics.
    At the APC Panel meeting, the manufacturer stated that the acoustic 
heart sounds recording and analysis service may be provided with or 
without a separately reportable electrocardiogram. Members of the APC 
Panel engaged in extensive discussion of clinical scenarios as they 
considered whether CPT code 0069T could or could not be appropriately 
reported alone or in conjunction with several different procedure 
codes. We note that the parenthetical information following the AMA's 
code descriptor indicates that CPT code 0069T is to be reported in 
conjunction with CPT code 93005 (Electrocardiogram, routine ECG with at 
least 12 leads; tracing only, without interpretation and report). In 
addition, we do not believe that, based on its expected clinical uses 
as described by the manufacturer, CPT code 0069T would ever be 
performed as a sole service without other separately payable OPPS 
services and payment for CPT code 0069T could always be packaged into 
payments for those other services. Therefore, we believe that CPT code 
0069T is appropriately packaged because it is closely linked to the 
performance of an ECG, should never be reported alone, and is estimated 
to require only modest hospital resources. Using CY 2005 claims, we had 
only 9 single claims for CPT code 0069T, with a median line-item cost 
of $1.93, consistent with its low expected cost. Packaging payment for 
CPT code 0069T is consistent with the principles of a prospective 
payment system that provides payments for groups of services. To the 
extent that the acoustic heart sounding recording service may be more 
frequently provided in the future in association with ECGs or other 
OPPS services as its clinical indications evolve, we expect that its 
cost would also be increasingly reflected in the median costs for those 
other services, particularly ECG procedures.
    For CY 2007, we are proposing to accept the APC Panel's 
recommendation to maintain the packaged status of CPT code 0152T. The 
service involves the application of computer algorithms and 
classification technologies to chest x-ray

[[Page 49535]]

images to acquire and display information regarding chest x-ray regions 
that may contain indications of cancer. This code was a new Category 
III CPT code implemented in the CY 2006 OPPS and assigned a new interim 
status indicator of ``N'' in the CY 2006 OPPS final rule with comment 
period. The code is indicated as an add-on code to chest x-ray CPT 
codes, according to the AMA's CY 2006 CPT book. In its presentation to 
the APC Panel, the manufacturer requested that we pay separately for 
this service and assign it to a New Technology APC with a payment rate 
of $15, based on its estimated cost, clinical considerations, and 
similarity to other image post-processing services that are paid 
separately.
    Under the OPPS we make payment for medically necessary services 
either separately or packaged into our payments for other services. We 
agree with the APC Panel that packaged payment for diagnostic chest x-
ray computer-aided detection (CAD) under a prospective payment 
methodology for outpatient hospital services is appropriate because of 
the close relationship of chest x-ray CAD to chest x-ray services and 
its projected modest cost. Because 0152T is a new CPT code for CY 2006, 
we have no CY 2005 hospital claims data available for analysis. To the 
extent that CAD may be more frequently provided in the future to aid in 
the review of diagnostic chest x-rays as its clinical indications 
evolve, we expect that its cost would also be increasingly reflected in 
the median costs for chest x-ray procedures.
    For CY 2007, we are proposing to accept the recommendation of the 
APC Panel and maintain the packaged status of CPT code 36500. We note 
that several providers have commented that CPT code 36500 is sometimes 
billed only with its corresponding radiological supervision and 
interpretation code, 75893, but with no other separately payable OPPS 
services. In those cases, the provider would not receive any payment. 
For CY 2006, we accepted the APC Panel's recommendation to package both 
CPT codes 36500 and 75893 and to examine claims data. Our initial 
review of several clinical scenarios submitted by the public seemed to 
suggest that other separately payable procedures, such as venography, 
would likely be billed on the same claim. Our claims data indicate that 
there are usually separately payable codes that are billed on claims 
with CPT codes 36500 and 75893. However, we acknowledge that these two 
codes may occasionally be provided without any separately payable 
procedures. In these uncommon instances, the provider historically has 
not received any payment under the OPPS. We also understand that there 
is a cost associated with registering a patient and providing these 
services. For CY 2006, we have approximately 160 single claims for CPT 
code 75893, with a median cost of $269. Based on the proposal described 
below for ``special'' packaged codes, for CY 2007, when CPT codes 36500 
and 75893 are billed on a claim with no separately payable OPPS 
services, CPT code 75893 would become separately payable and would 
receive payment for APC 0668. In this circumstance, payment for CPT 
code 36500 would be packaged into the separate payment for CPT code 
75893.
    For CY 2007, we are proposing to accept the APC Panel's 
recommendation and pay separately for CPT codes 36540, 36600, 38792, 
75893, 94762, and 96523 when any of these codes appear on a claim with 
no separately payable OPPS services also reported for the same date of 
service. We will refer to this subset of codes as ``special'' packaged 
codes. We acknowledge that there is a cost to the hospital associated 
with registering and treating a patient, regardless of whether the 
specific service provided requires minimal or significant hospital 
resources. While we continue to believe that these ``special'' packaged 
codes are almost always provided along with a separately payable 
service, our claims analyses indicate that there are rare instances 
when one of these services is provided without another separately 
payable OPPS service on the claim for the same date of service. In 
these instances, providers do not currently receive any payment. 
Therefore, we are proposing to provide payment for the ``special'' 
packaged codes listed above when they are billed on a claim without 
another separately payable OPPS service on the same date. When any of 
the ``special'' packaged codes are billed with other codes that are 
separately payable under the OPPS on the same date of service, the 
``special'' packaged code would be treated as a packaged code, and the 
cost of the packaged code would be bundled into the costs of the other 
separately payable services on the claim. The payments that the 
provider receives for the separately payable services would include the 
bundled payment for the packaged code(s).
    We have heard concerns from the public stating that they are unable 
to submit claims to CMS that report only packaged codes. We note that 
although these claims are processed by the OCE and are ultimately 
rejected for payment, they are received by CMS, and we have cost data 
for packaged services based upon these claims. However, we recognize 
that the data used in our analyses to assess the frequencies with which 
packaged services are provided alone and their median costs are 
somewhat limited. It is possible that an unknown number of hospitals 
chose not to submit claims to CMS when a packaged code(s) was provided 
without other separately payable services on their claims, realizing 
that they would not receive payment for those claims. While we have 
been told that some hospitals may bill for a low-level visit if a 
packaged service only is provided so that they receive some payment for 
the encounter, we note that providers should bill a low-level visit 
code in such circumstances only if the hospital provides a significant, 
separately identifiable low-level visit in association with the 
packaged service.
    Through OCE logic, the PRICER would automatically assign payment 
for a ``special'' packaged service reported on a claim if there are no 
other services separately payable under the OPPS on the claim for the 
same date of service. In all other circumstances, the ``special'' 
packaged codes would be treated as packaged services. We are proposing 
to assign status indicator ``Q'' to these ``special'' packaged codes to 
indicate that they are usually packaged, except for special 
circumstances when they are separately payable. Through OCE logic, the 
status indicator of a ``special'' packaged code would be changed either 
to ``N'' or to the status indicator of the APC to which the code is 
assigned for separate payment, depending upon the presence or absence 
of other OPPS services also reported on the claim for the same date. 
Table 3 below lists the proposed status indicators and APC assignments 
for these ``special'' packaged codes when they are separately payable. 
We note that the payment for these ``special'' packaged codes is 
intended to make payment for all of the hospital costs, which may 
include patient registration and establishment of a medical record, in 
an outpatient hospital setting even when no separately payable services 
are provided to the patient on that day.

[[Page 49536]]



           Table 3.--Proposed Status Indicators and APC Assignments for ``Special'' Packaged CPT Codes
----------------------------------------------------------------------------------------------------------------
                                                                                                    Proposed CY
            CPT code                     Descriptor           Proposed CY      Proposed status       2007 APC
                                                               2007 APC           indicator           median
----------------------------------------------------------------------------------------------------------------
36540...........................  Collect blood, venous               0624  S...................          $32.96
                                   access device.
36600...........................  Arterial puncture;                  0035  T...................           12.45
                                   withdrawal of blood for
                                   diagnosis.
38792...........................  Sentinel node                       0389  S...................           86.92
                                   identification.
75893...........................  Venous sampling through             0668  S...................          393.35
                                   catheter, with or
                                   without angiography,
                                   radiological
                                   supervision and
                                   interpretation.
94762...........................  Noninvasive ear or pulse            0443  X...................           61.39
                                   oximetry for oxygen
                                   saturation by
                                   continuous overnight
                                   monitoring.
96523...........................  Irrigation of implanted             0624  S...................           32.96
                                   venous access device.
----------------------------------------------------------------------------------------------------------------

    In the case of a claim with two or more ``special'' packaged codes 
only reported on a single date of service, the PRICER would assign 
separate payment only to the ``special'' packaged code that would 
receive the highest payment. The other ``special'' codes would remain 
packaged and would not receive separate payment.
    We will monitor and analyze the claims frequency and claims detail 
for situations in which these codes are billed alone and then 
separately paid. This will allow us to determine both which providers 
are billing these codes most often and under what circumstances these 
codes are billed. We expect that hospitals scheduling and providing 
services efficiently to Medicare beneficiaries will continue to 
generally provide these minor services in conjunction with other 
medically necessary services.
    For CY 2007, we are proposing to accept the APC Panel's 
recommendation and maintain the packaged status of CPT codes 74328, 
74329, and 74330. The AMA notes that these radiological supervision and 
interpretation codes should be reported with procedure codes 43260-
43272. In fact, our data indicate that these supervision and 
interpretation codes are billed with 43260-43272 more than 90 percent 
of the time, indicating their routine use. We believe that some 
providers may be concerned that although the payment for the endoscopic 
procedure includes the bundled payment for the supervision and 
interpretation performed by the radiology department, the payment for 
the comprehensive service may be directed to the hospital department 
that performed the endoscopic procedure, rather than to the radiology 
department. While we understand this concern, the OPPS pays hospital 
for services provided, and we believe that hospitals are responsible 
for attributing payments to hospital departments as they believe 
appropriate. We do not believe that packaging these radiological 
supervision and interpretation codes leads to inaccurate payments for 
the full hospital resources associated with endoscopic retrograde 
cholangiopancreatography procedures.
    For CY 2007, we are proposing to accept the APC Panel's 
recommendation to continue to package CPT codes 76001, 76003, and 76005 
and to continue to pay separately for CPT code 76000. We received a 
comment which stated that it was inconsistent to pay separately for CPT 
code 76000 (Fluoroscopy (separate procedure), up to one hour physician 
time) but to package CPT code 76001 (Fluoroscopy, physician time more 
than one hour) when CPT code 76001 appears to be a similar code, except 
that it is for a longer period of physician time. The Packaging 
Subcommittee believed that many of the claims that listed CPT code 
76001 were erroneously billed, as many of the procedure codes that were 
billed with CPT code 76001 included fluoroscopy as an integral part of 
the procedure. In other cases, the Packaging Subcommittee noted that a 
procedure-specific fluoroscopy code should probably have been billed, 
instead of CPT code 76001. The Packaging Subcommittee believed that CPT 
code 76000 could often be provided as a sole service, with no other 
separately payable procedures. The Packaging Subcommittee recommended 
that CMS continue to pay separately for CPT code 76000, consistent with 
the AMA's definition of this code, which specifies that it is a 
separate procedure, and to continue to package CPT codes 76001, 76003, 
and 76005.
    For CY 2007, we are proposing to accept the APC Panel's 
recommendation to continue to package CPT codes 76937 and 75998. In the 
CY 2006 OPPS final rule with comment period (70 FR 68544 and 68545), we 
reviewed in detail the data related to these two codes and promised to 
share CY 2004 and early CY 2005 data with the Packaging Subcommittee. 
We reviewed current data with the Packaging Subcommittee, and it 
recommended that we continue to package these codes. In summary, we 
believe that these services would always be provided with another 
separately payable procedure, so their costs would be appropriately 
bundled with the definitive vascular access device procedures. The 
costs for these guidance procedures are relatively low compared to the 
CY 2007 proposed payment rates for the separately payable services they 
most frequently accompany. If we were to unpackage CPT codes 76937 and 
75998, the single bills available to develop median costs for vascular 
access device insertion services would be significantly reduced. 
Therefore, we are proposing to continue to package both CPT codes 76937 
and 75998 for CY 2007.
    For CY 2007, we are proposing to accept the APC Panel's 
recommendation to continue to package HCPCS code G0269. This code 
should never be billed without another separately payable procedure. 
Recent data indicate that 94 percent of the time HCPCS code G0269 was 
billed with either CPT code 93510 or 93526. In addition, the median 
cost of G0269 is low compared to the costs of the procedures with which 
it is typically associated.
    For CY 2007, we are proposing to continue packaging CPT codes 94760 
(Noninvasive ear or pulse oximetry for oxygen saturation; single 
determination) and 94761 (Noninvasive ear or pulse oximetry for oxygen 
saturation; multiple determinations) and not adopt the APC Panel's 
recommendation to provide separate payment for these services if there 
are no other separately payable OPPS services on the claim for the same 
date of service. Our data review revealed that these services are very 
frequently provided in the OPPS, with over 1 million claims in CY 2005 
for the single pulse oximetry determination service and over 400,000 
claims for the multiple determinations service. These high frequencies 
may actually be understated as both of these services are packaged 
codes, and we have been told that some hospitals may not report the

[[Page 49537]]

HCPCS codes for services for which they receive no separate payments. 
Single and multiple pulse oximetry determinations are almost always 
provided in association with other services that are separately payable 
under the OPPS, into which their costs may be appropriately packaged. 
Specifically, OPPS hospital claims data revealed that out of the total 
instances of CPT code 94760 appearing on claims used for setting 
payment rates for this CY 2007 OPPS proposed rule, CPT code 94760 was 
billed only 4 percent of the time in association with no other 
separately payable OPPS services, with a median cost of $14. Using the 
same data, CPT code 94761 was billed only 7 percent of the time in 
association with no other separately payable OPPS services, with a 
median cost of $36. These pulse oximetry services have a relatively low 
cost compared with the OPPS services they frequently accompany. If we 
were to provide separate payment for these pulse oximetry 
determinations when performed as stand alone procedures by hospitals, 
we are concerned that hospitals would lose their incentive to provide 
these basic, low cost, and brief services as efficiently as possible, 
generally during the same encounters where they are providing other 
services to the same patients. We believe their appropriate provision 
as single services should be very rare. Therefore, for CY 2007 we are 
proposing not to include these codes on the list of ``special'' 
packaged codes, so their payment would remain packaged in all 
circumstances.
    For CY 2007, we are proposing to assign status indicator ``A'' to 
HCPCS code P9612 and reject the APC Panel's recommendation to pay 
separately under the OPPS for this code when it is billed without any 
separately payable OPPS services. This code is currently payable on the 
clinical lab fee schedule. Its status indicator of ``A'' would provide 
payment for the service whenever it is billed, regardless of the 
presence or absence of other reported services. In addition, for 
consistency we are proposing to assign status indicator ``A'' to HCPCS 
code P9615 as it is also payable on the clinical lab fee schedule. In 
general, when a code is payable on the clinical lab fee schedule, we 
defer to that fee schedule and do not assign payment under the OPPS.
    The APC Panel Packaging Subcommittee remains active, and additional 
issues and new data concerning the packaging status of codes will be 
shared for its consideration as information becomes available. We 
continue to encourage submission of common clinical scenarios involving 
currently packaged HCPCS codes to the Packaging Subcommittee for its 
ongoing review. Additional detailed suggestions for the Packaging 
Subcommittee should be submitted to APCPanel@cms.hhs.gov, with 
``Packaging Subcommittee'' in the subject line.

B. Proposed Payment for Partial Hospitalization

    (If you choose to comment on issues in this section, please include 
the caption ``Partial Hospitalization'' at the beginning of your 
comment.)
1. Background
    Partial hospitalization is an intensive outpatient program of 
psychiatric services provided to patients as an alternative to 
inpatient psychiatric care for beneficiaries who have an acute mental 
illness. A partial hospitalization program (PHP) may be provided by a 
hospital to its outpatients or by a Medicare-certified community mental 
health center (CMHC). Section 1833(t)(1)(B)(i) of the Act provides the 
Secretary with the authority to designate the hospital outpatient 
services to be covered under the OPPS. The Medicare regulations at 42 
CFR 419.21(c) that implement this provision specify that payments under 
the OPPS will be made for partial hospitalization services furnished by 
CMHCs. Section 1883(t)(2)(C) of the Act requires that we establish 
relative payment weights based on median (or mean, at the election of 
the Secretary) hospital costs determined by 1996 claims data and data 
from the most recent available cost reports. Payment to providers under 
the OPPS for PHPs represents the provider's overhead costs associated 
with the program. Because a day of care is the unit that defines the 
structure and scheduling of partial hospitalization services, we 
established a per diem payment methodology for the PHP APC, effective 
for services furnished on or after August 1, 2000. For a detailed 
discussion, we refer readers to the April 7, 2000 OPPS final rule with 
comment period (65 FR 18452).
    Historically, the median per diem cost for CMHCs has greatly 
exceeded the median per diem cost for hospital-based PHPs and has 
fluctuated significantly from year to year while the median per diem 
cost for hospital-based PHPs has remained relatively constant ($200-
$225). We believe that CMHCs may have increased and decreased their 
charges in response to Medicare payment policies. As discussed in more 
detail in section II.B.2. of the preamble of this proposed rule and in 
the CY 2004 OPPS final rule with comment period (68 FR 63470), we 
believe that some CMHCs manipulated their charges in order to 
inappropriately receive outlier payments.
    In the CY 2003 OPPS update, the difference in median per diem cost 
for CMHCs and hospital-based PHPs was so great, $685 for CMHCs and $225 
for hospital-based PHPs, that we applied an adjustment factor of .583 
to CMHC costs to account for the difference between ``as submitted'' 
and ``final settled'' cost reports. By doing so, the CMHC median per 
diem cost was reduced to $384, resulting in a combined hospital-based 
and CMHC PHP median per diem cost of $273. As with all APCs in the 
OPPS, the median cost for each APC was scaled relative to the cost of a 
mid-level office visit and the conversion factor was applied. The 
resulting per diem rate for PHP for CY 2003 was $240.03.
    In the CY 2004 OPPS update, the median per diem cost for CMHCs grew 
to $1,038, while the median per diem cost for hospital-based PHPs was 
again $225. After applying the .583 adjustment factor in the CY 2004 
proposed rule to the median CMHC per diem cost, the median CMHC per 
diem cost was $605. Because the CMHC median per diem cost exceeded the 
average per diem cost of inpatient psychiatric care, we proposed a per 
diem rate for CY 2004 based solely on hospital-based PHP data. The 
proposed PHP per diem for CY 2004, after scaling, was $208.95. However, 
by the time we published the OPPS final rule with comment period for CY 
2004, we had received updated CCRs for CMHCs. Using the updated CCRs 
significantly lowered the CMHC median per diem cost to $440. As a 
result, we determined that the higher per diem cost for CMHCs was not 
due to the difference between ``as submitted'' and ``final settled'' 
cost reports, but was the result of excessive increases in charges 
which may have been done in order to receive higher outlier payments. 
Therefore, in calculating the PHP median per diem cost for CY 2004, we 
did not apply the .583 adjustment factor to CMHC costs to compute the 
PHP APC. Using the updated CCRs for CMHCs, the combined hospital-based 
and CMHC median per diem cost for PHP was $303. After scaling, we 
established the CY 2004 PHP APC of $286.82.
    For CY 2005, the PHP per diem amount was based on 12 months of 
hospital and CMHC PHP claims data (for services furnished from January 
1, 2003, through December 31, 2003). We used data from all hospital 
bills reporting condition code 41, which identifies the claim as 
partial hospitalization, and all bills from CMHCs because CMHCs are 
Medicare

[[Page 49538]]

providers only for the purpose of providing partial hospitalization 
services. We used CCRs from the most recently available hospital and 
CMHC cost reports to convert each provider's line-item charges as 
reported on bills, to estimate the provider's cost for a day of PHP 
services. Per diem costs were then computed by summing the line-item 
costs on each bill and dividing by the number of days on the bill.
    In a Program Memorandum issued on January 17, 2003 (Transmittal A-
03-004), we directed fiscal intermediaries to recalculate hospital and 
CMHC CCRs by April 30, 2003, using the most recently settled cost 
reports. Following the initial update of CCRs, fiscal intermediaries 
were further instructed to continue to update a provider's CCR and 
enter revised CCRs into the outpatient provider specific file. 
Therefore, for CMHCs, we used CCRs from the outpatient provider 
specific file.
    In the CY 2005 OPPS update, the CMHC median per diem cost was $310 
and the hospital-based PHP median per diem cost was $215. No 
adjustments were determined to be necessary and, after scaling, the 
combined median per diem cost of $289 was reduced to $281.33. We 
believed that the reduction in the CMHC median per diem cost indicated 
that the use of updated CCRs had accounted for the previous increase in 
CMHC charges, and represented a more accurate estimate of CMHC per diem 
costs for PHP.
    For the CY 2006 OPPS final rule with comment period, we analyzed 12 
months of the most current claims data available for hospital and CMHC 
PHP services furnished between January 1, 2004, and December 31, 2004. 
We also used the most currently available CCRs to estimate costs. The 
median per diem cost for CMHCs was $154, while the median per diem cost 
for hospital-based PHPs was $201. Based on the CY 2004 claims data, the 
average charge per day for CMHCs was $760, considerably greater than 
hospital-based per day costs but significantly lower than what it was 
in CY 2003 ($1,184). We believed that a combination of reduced charges 
and slightly lower CCRs for CMHCs resulted in a significant decline in 
the CMHC median per diem cost between CY 2003 and CY 2004.
    Following the methodology used for the CY 2005 OPPS update, the CY 
2006 OPPS update combined hospital-based and CMHC median per diem cost 
was $161, a decrease of 44 percent compared to the CY 2005 combined 
median per diem amount. We believed that this amount was too low to 
cover the cost for all PHPs.
    Therefore, as stated in the CY 2006 OPPS final rule with comment 
period (70 FR 68548 and 68549), we considered the following three 
alternatives to our update methodology for the PHP APC for CY 2006 to 
mitigate this drastic reduction in payment for PHP services: (1) Base 
the PHP APC on hospital-based PHP data alone; (2) apply a different 
trimming methodology to CMHC costs in an effort to eliminate the effect 
of data for those CMHCs that appeared to have excessively increased 
their charges in order to receive outlier payments; and (3) apply a 15 
percent reduction to the combined hospital-based and CMHC median per 
diem cost that was used to establish the CY 2005 PHP APC. (We refer 
readers to the CY 2006 OPPS final rule with comment period for a full 
discussion of the three alternatives (70 FR 68548).) After carefully 
considering these three alternatives and all comments received on them, 
we adopted the third alternative for CY 2006. We adopted this 
alternative because we believed and continue to believe that a 
reduction in the CY 2005 median per diem cost would strike an 
appropriate balance between using the best available data and providing 
adequate payment for a program that often spans 5-6 hours a day. We 
believe that 15 percent is an appropriate reduction because it 
recognizes decreases in median per diem costs in both the hospital data 
and the CMHC data, and also reduces the risk of any adverse impact on 
access to these services that might result from a large single-year 
rate reduction. However, we adopted this policy as a transitional 
measure, and stated in the CY 2006 OPPS final rule with comment period 
that we would continue to monitor CMHC costs and charges for these 
services and work with CMHCs to improve their reporting so that 
payments can be calculated based on better empirical data, consistent 
with the approach we have used to calculate payments in other areas of 
the OPPS (70 FR 68548).
    To apply this methodology for CY 2006, we reduced $289 (the CY 2005 
combined unscaled hospital-based and CMHC median per diem cost) by 15 
percent, resulting in a combined median per diem cost of $245.65 for CY 
2006.
2. Proposed PHP APC Update for CY 2007
    For CY 2007, we are proposing to calculate the CY 2007 PHP per diem 
payment rate using the same update methodology that we adopted in CY 
2006. That is, we are proposing to apply an additional 15-percent 
reduction to the combined hospital-based and CMHC median per diem cost 
that was used to establish the CY 2006 per diem PHP payment.
    For CY 2007, we analyzed 12 months of data for hospital and CMHC 
PHP claims for services furnished between January 1, 2005 and December 
31, 2005. We also used the most currently available CCRs to estimate 
costs. Using these CY 2005 claims data, the median per diem cost for 
CMHCs was $165 and the median per diem cost for hospital-based PHPs was 
$209. Following the methodology used for the CY 2005 update, the CY 
2007 combined hospital-based and CMHC median per diem cost is $172.
    While the combined hospital-based and CMHC median per diem cost is 
about $10 higher using the CY 2005 data compared to the CY 2004 data 
($172 compared to $161), we believe this amount is still too low to 
cover the cost for PHPs. We continue to believe that the policy we 
adopted for CY 2006--a 15-percent reduction applied to the current 
median cost--provides an appropriate decrease in median per diem costs 
for both the hospital and CMHC data. Therefore, for CY 2007, we are 
proposing an additional 15 percent reduction to the combined hospital-
based and CMHC median per diem cost. We will continue to monitor and 
work with CMHCs to improve their reporting. If CMHC data continues to 
be a problem, we would consider using data from hospital-based PHPs 
only.
    To calculate the CY 2007 APC PHP per diem cost, we reduced $245.65 
(the CY 2005 combined hospital-based and CMHC median per diem cost of 
$289 reduced by 15 percent) by 15 percent, which resulted in a combined 
median per diem cost of $208.80.
3. Proposed Separate Threshold for Outlier Payments to CMHCs
    In the November 7, 2003 final rule with comment period (68 FR 
63469), we indicated that, given the difference in PHP charges between 
hospitals and CMHCs, we did not believe it was appropriate to make 
outlier payments to CMHCs using the outlier percentage target amount 
and threshold established for hospitals. There was a significant 
difference in the amount of outlier payments made to hospitals and 
CMHCs for PHP. In addition, further analysis indicated that using the 
same OPPS outlier threshold for both hospitals and CMHCs did not limit 
outlier payments to high cost cases and resulted in excessive outlier 
payments to CMHCs. Therefore, for CYs 2004, 2005, and 2006, we 
established a separate outlier threshold for CMHCs. For CYs 2004 and 
2005, we designated a portion of the

[[Page 49539]]

estimated 2.0 percent outlier target amount specifically for CMHCs, 
consistent with the percentage of projected payments to CMHCs under the 
OPPS in each of those years, excluding outlier payments. For CY 2006, 
we set the estimated outlier target at 1.0 percent and allocated a 
portion of that 1.0 percent, 0.6 percent (or 0.006 percent of total 
OPPS payments), to CMHCs for PHP services. The CY 2006 CMHC outlier 
threshold is met when the cost of furnishing services by a CMHC exceeds 
3.40 times the PHP APC payment amount. The CY 2006 OPPS outlier payment 
percentage is 50 percent of the amount of costs in excess of the 
threshold.
    The separate outlier threshold for CMHCs became effective January 
1, 2004, and has resulted in more commensurate outlier payments. In CY 
2004, the separate outlier threshold for CMHCs resulted in $1.8 million 
in outlier payments to CMHCs. In CY 2005, the separate outlier 
threshold for CMHCs resulted in $0.5 million in outlier payments to 
CMHCs. In contrast, in CY 2003, more than $30 million was paid to CMHCs 
in outlier payments. We believe this difference in outlier payments 
indicates that the separate outlier threshold for CMHCs has been 
successful in keeping outlier payments to CMHCs in line with the 
percentage of OPPS payments made to CMHCs.
    As discussed in section II.B.2. of this preamble, the CY 2005 CMHC 
data produce median per diem costs too low to use for the CY 2007 
partial hospitalization payment rate. Due to the continued volatility 
of the CMHC charge data, we are proposing to maintain the existing 
outlier threshold for CMHCs for CY 2007 at 3.40 times the APC payment 
amount and the CY 2007 outlier payment percentage applicable to costs 
in excess of the threshold at 50 percent.
    As noted in section II.G. of this preamble, for CY 2007, we are 
proposing to continue our policy of setting aside 1.0 percent of the 
aggregate total payments under the OPPS for outlier payments. We are 
proposing that a portion of that 1.0 percent, an amount equal to 0.25 
percent of outlier payments and 0.0025 percent of total OPPS payments 
would be allocated to CMHCs for PHP service outliers. As discussed in 
section II.G. of this preamble, we again are proposing to set a dollar 
threshold in addition to an APC multiplier threshold for OPPS outlier 
payments. However, because the PHP is the only APC for which CMHCs may 
receive payment under the OPPS, we would not expect to redirect outlier 
payments by imposing a dollar threshold. Therefore, we are not 
proposing to set a dollar threshold for CMHC outliers. As noted above, 
we are proposing to set the outlier threshold for CMHCs for CY 2007 at 
3.40 percent times the APC payment amount and the CY 2007 outlier 
payment percentage applicable to costs in excess of the threshold at 50 
percent.
    CMS and the Office of the Inspector General are continuing to 
monitor the excessive outlier payments to CMHCs.

C. Proposed Conversion Factor Update for CY 2007

    (If you choose to comment on issues in this section, please include 
the caption ``Conversion Factor'' at the beginning of your comment.)
    Section 1833(t)(3)(C)(ii) of the Act requires us to update the 
conversion factor used to determine payment rates under the OPPS on an 
annual basis. Section 1833(t)(3)(C)(iv) of the Act provides that, for 
CY 2007, the update is equal to the hospital inpatient market basket 
percentage increase applicable to hospital discharges under section 
1886(b)(3)(B)(iii) of the Act.
    The forecast of the hospital market basket increase for FY 2007 
published in the IPPS proposed rule on April 25, 2006 is 3.4 percent 
(71 FR 24148). To set the OPPS proposed conversion factor for CY 2007, 
we increased the CY 2006 conversion factor of $59.511, as specified in 
the November 10, 2005 final rule with comment period (70 FR 68551), by 
3.4 percent.
    In accordance with section 1833(t)(9)(B) of the Act, we further 
adjusted the conversion factor for CY 2006 to ensure that the revisions 
we are making to our updates for a revised wage index and expanded 
rural adjustment are made on a budget neutral basis. We calculated a 
budget neutrality factor of 0.999908021 for wage index changes by 
comparing total payments from our simulation model using the FY 2007 
IPPS proposed wage index values to those payments using the current (FY 
2006) IPPS wage index values. To reflect the inclusion of essential 
access community hospitals (EACHs) as rural SCHs (discussed in section 
II.F. of this preamble), we calculated an additional budget neutrality 
factor of 0.999883468 for the rural adjustment, including EACHs. For CY 
2007, we estimate that allowed pass-through spending would equal 
approximately $43.2 million, which represents 0.13 percent of total 
OPPS projected spending for CY 2007. The proposed conversion factor 
also is adjusted by the difference between the 0.17 percent pass-
through dollars set-aside in CY 2006 and the 0.13 percent estimate for 
CY 2007 pass-through spending. Finally, proposed payments for outliers 
remain at 1.0 percent of total payments for CY 2007.
    The proposed market basket increase update factor of 3.4 percent 
for CY 2007, the required wage index budget neutrality adjustment of 
approximately 0.999908021, the return of 0.04 percent for the 
difference in the pass-through set-aside, and the proposed adjustment 
for the rural payment adjustment for rural SCHs, including rural EACHs, 
of 0.999883468 result in a proposed conversion factor for CY 2007 of 
$61.551.

D. Proposed Wage Index Changes for CY 2007

    (If you choose to comment on issues in this section, please include 
the caption ``OPPS: Wage Indices'' at the beginning of your comment.)
    Section 1833(t)(2)(D) of the Act requires the Secretary to 
determine a wage adjustment factor to adjust, for geographic wage 
differences, the portion of the OPPS payment rate and the copayment 
standardized amount attributable to labor and labor-related cost. This 
adjustment must be made in a budget neutral manner. As we have done in 
prior years, we are proposing to adopt the IPPS wage indices and extend 
these wage indices to hospitals that participate in the OPPS but not 
the IPPS (referred to in this section as ``non-IPPS'' hospitals).
    As discussed in section II.A. of this preamble, we standardize 60 
percent of estimated costs (labor-related costs) for geographic area 
wage variation using the IPPS wage indices that are calculated prior to 
adjustments for reclassification to remove the effects of differences 
in area wage levels in determining the OPPS payment rate and the 
copayment standardized amount.
    As published in the original OPPS April 7, 2000 final rule with 
comment period (65 FR 18545), OPPS has consistently adopted the final 
IPPS wage indices as the wage indices for adjusting the OPPS standard 
payment amounts for labor market differences. Thus, the wage index that 
applies to a particular hospital under the IPPS will also apply to that 
hospital under the OPPS. As initially explained in the September 8, 
1998 OPPS proposed rule, we believed and continue to believe that using 
the IPPS wage index as the source of an adjustment factor for OPPS is 
reasonable and logical, given the inseparable, subordinate status of 
the hospital outpatient within the hospital overall. In accordance with 
section 1886(d)(3)(E) of the Act, the IPPS wage index is updated 
annually. In this proposed rule, we are using the

[[Page 49540]]

proposed FY 2007 hospital IPPS wage indices published in the Federal 
Register on April 25, 2006, which include the wage indices proposed to 
be in effect through March 31, 2007, and those proposed to be in effect 
on or after April 1, 2007, to accommodate the expiring reclassification 
provisions under section 508 of Pub. L. 108-173, to determine the wage 
adjustments for the OPPS payment rate and the copayment standardized 
amount for CY 2007. However, in accordance with our established policy, 
we are proposing to use the FY 2007 final version of these wage indices 
to determine the wage adjustments for the OPPS payment rate and 
copayment standardized amount that we will publish in our final rule 
for CY 2007.
    On May 17, 2006 (71 FR 28644), in response to a court order in 
Bellevue Hosp. Ctr. v. Leavitt, we published a second IPPS proposed 
rule that would revise the methodology for calculating the occupational 
mix adjustment for FY 2007. We proposed to replace in full the 
descriptions of the data and methodology that would be used in 
calculating the occupational mix adjustment discussed in the first FY 
2007 IPPS proposed rule. The second proposed rule also states that, 
because of the collection of new occupational mix data, we would 
publish the FY 2007 occupational mix adjusted wage index tables and 
related impacts on the CMS Web site shortly after we publish the FY 
2007 IPPS final rule, and in advance of October 1, 2006. The weights 
and factors would also be published on the CMS Web site after the FY 
2007 IPPS final rule, but in advance of October 1, 2006. (71 FR 28650). 
Thus, for purposes of determining OPPS wage indices, readers are also 
directed to refer to the wage index tables that are published after the 
FY 2007 IPPS final rule.
    We note that the FY 2007 IPPS wage indices continue to reflect a 
number of changes implemented in FY 2005 as a result of the revised 
Office of Management and Budget (OMB) standards for defining geographic 
statistical areas, the implementation of an occupational mix adjustment 
as part of the wage index, and new wage adjustments provided for under 
Pub. L. 108-173. The following is a brief summary of the proposed 
changes in the FY 2005 IPPS wage indices, continued for FY 2007, and 
any adjustments that we are applying to the OPPS for CY 2007. We refer 
the reader to the FY 2007 IPPS proposed rule (71 FR 24074 through 
24091) for a detailed discussion of the proposed changes to the wage 
indices. Readers should refer to our proposed rule published May 17, 
2006, for proposed changes to the occupational mix adjustment and 
related issues (71 FR 28644-28653). In this proposed rule, we are not 
reprinting the proposed FY 2007 IPPS wage indices. We also refer 
readers to the CMS Web site for the OPPS at http://www.cms.hhs.gov/providers/hopps.
 At this Web site, the reader will find a link to the 

proposed FY 2007 IPPS wage indices tables. (However, as noted above, 
these tables may change as a result of the May 17, 2006 occupational 
mix proposed rule discussed above.)
    1. The proposed continued use of the Core Based Statistical Areas 
(CBSAs) issued by the OMB as revised standards for designating 
geographical statistical areas based on the 2000 Census data, to define 
labor market areas for hospitals for purposes of the IPPS wage index. 
The OMB revised standards were published in the Federal Register on 
December 27, 2000 (65 FR 82235), and OMB announced the new CBSAs on 
June 6, 2003, through an OMB bulletin. In the FY 2005 IPPS final rule, 
CMS adopted the new OMB definitions for wage index purposes. In the FY 
2007 IPPS proposed rule, we again stated that hospitals located in MSAs 
will be urban and hospitals that are located in Micropolitan Areas or 
outside CBSAs will be rural. To help alleviate the decreased payments 
for previously urban hospitals that became rural under the new 
geographical definitions, we allowed these hospitals to maintain for 
the 3-year period from FY 2005 through FY 2007, the wage index of the 
MSA where they previously had been located. To be consistent with the 
IPPS, we will continue the policy we began in CY 2005 of applying the 
same urban-to-rural transition to non-IPPS hospitals paid under the 
OPPS. That is, we would maintain the wage index of the MSA where the 
hospital was previously located for purposes of determining a wage 
index for CY 2007. Beginning in FY 2008, the 3-year transition will end 
and these hospitals will receive their statewide rural wage index. 
However, hospitals paid under the IPPS will be eligible to apply for 
reclassification.
    For the occupational mix adjustment, we refer readers to CMS's May 
17, 2006 occupational mix proposed rule discussed above. Under this 
proposed rule, wage indices would be adjusted 100 percent for 
occupational mix. In addition, as stated above, CMS plans that wage 
index tables and other adjustment factors would be published after 
publication of the FY 2007 IPPS final rule, but prior to October 1, 
2006.
    As noted above, for purposes of estimating an adjustment for the 
OPPS payment rates to accommodate geographic differences in labor costs 
in this proposed rule, we have used the wage indices identified in the 
FY 2007 IPPS proposed rule. For the CY 2007 OPPS final rule, we plan to 
use the revised FY 2007 IPPS wage indices that will be fully adjusted 
for differences in occupational mix using the new survey data and 
available after October 1, 2006. In all cases, we will use the final FY 
2007 IPPS wage indices, which include the wage indices to be in effect 
through March 31, 2007, and those to be in effect on or after April 1, 
2007, with any subsequent corrections, for calculating OPPS payment in 
CY 2007.
    2. The reclassifications of hospitals to geographic areas for 
purposes of the wage index. For purposes of the OPPS wage index, we are 
proposing to adopt all of the IPPS reclassifications for FY 2007, 
including reclassifications that the Medicare Geographic Classification 
Review Board (MGCRB) approved under the one-time appeal process for 
hospitals under section 508 of Pub. L. 108-173. We note that section 
508 reclassifications will terminate March 31, 2007, and that this 
expiration, along with the calendar year operating period of OPPS, 
impacts the calculation of the OPPS payment and the budget neutrality 
adjustment for the wage index. In the FY 2007 IPPS proposed rule (71 FR 
24085 through 24087), we proposed procedural rules for hospitals that 
wished to reclassify for the second half of FY 2007 (April 1, 2007, 
through September 30, 2007) under section 1886(d)(10) of the Act. These 
rules essentially provided procedures for some hospitals to retain 
section 508 reclassifications for the first half of FY 2007 and also be 
eligible to maintain an approved reclassification under section 
1886(d)(10) for the second half of FY 2007. Rather than calculating one 
wage index that reflected all final reclassification adjustments, we 
proposed two separate wage indices for FY 2007, one to be in effect 
October 1 through March 31, 2007, and one to be in effect April 1 
through September 30, 2007.
    These procedural rules also impact a hospital's eligibility to 
receive the out-migration wage adjustment, discussed in greater detail 
in section III.I. of the FY 2007 IPPS proposed rule (71 FR 24087) and 
under section II.D.4. of this preamble. A hospital cannot receive an 
out-migration wage adjustment if it is reclassified under section 
1886(d)(10) of the Act. Hospitals declining reclassification status for 
any part of the year become eligible to receive the out-migration wage 
adjustment if they are located in an adjustment county.

[[Page 49541]]

Because the OPPS operates on a calendar year (January 1 through 
December 31) and not a fiscal year, the expiring reclassification 
status under section 508 of Pub. L. 108-173 results in different wage 
indices for OPPS for the first quarter of CY 2007 (January 1, 2007, 
through March 31, 2007) and the last three quarters of CY 2007 (April 
1, 2007, through December 31, 2007).
    3. The out-migration wage adjustment to the wage index. In FY 2007 
IPPS proposed rule (71 FR 24087), we discussed the out-migration 
adjustment under section 505 of Pub. L. 109-173 for counties under this 
adjustment. Hospitals paid under the IPPS located in the qualifying 
section 505 ``out-migration'' counties receive a wage index increase 
unless they have already been otherwise reclassified. (See the IPPS FY 
2007 proposed rule for further information on out-migration.) For OPPS 
purposes, we propose to continue our policy from CY 2006 to allow non-
IPPS hospitals paid under the OPPS to qualify for out-migration 
adjustment if they are located in a section 505 out-migration county. 
Because non-IPPS hospitals cannot reclassify, they are eligible for the 
out-migration wage adjustment. Tables identifying counties eligible for 
the out-migration adjustment will be published after the FY 2007 IPPS 
final rule and CMS plans to publish them in advance of October 1, 2006. 
These tables will reflect updated county listing to reflect changes to 
the occupation mix adjustment made in response to Bellevue court case 
discussed above. Because we are proposing to adopt the final FY 2007 
IPPS wage index, we will adopt any changes in a hospital's 
classification status that would make them either eligible or 
ineligible for the out-migration wage adjustment both through March 31, 
2007, and on or after April 1, 2007.
    With the exception of reclassifications resulting from the 
implementation of the one-time appeal process under section 508 of Pub. 
L. 108-173, all changes to the wage index resulting from geographic 
labor market area reclassifications or other adjustments must be 
incorporated in a budget neutral manner. Accordingly, in calculating 
the OPPS budget neutrality estimates for CY 2007, in this proposed 
rule, we have included the wage index changes that would result from 
MGCRB reclassifications, implementation of section 505 of Pub. L. 108-
173, and other refinements made in the FY 2007 IPPS proposed rule, such 
as the hold harmless provision for hospitals changing status from urban 
to rural under the new CBSA geographic statistical area definitions. 
However, section 508 sets aside $900 million to implement the section 
508 reclassifications. We considered the increased Medicare payments 
that the section 508 reclassifications would create in both the IPPS 
and OPPS when we determined the impact of the one-time appeal process. 
Because the increased OPPS payments already count against the $900 
million limit, we did not consider these reclassifications when we 
calculated the proposed OPPS budget neutrality adjustment.
    Under the procedural rules described under section II.D.3. of this 
proposed rule above and in section III.H.5. of the FY 2007 IPPS 
proposed rule (71 FR 24085) regarding expiring section 508 
reclassifications, different wage indices may be in effect for the 
first quarter of the calendar year and the last three quarters of the 
calendar year. These rules have implications for budget neutrality 
adjustments. Any additional payment attributable to reclassifications 
due to section 508 between January 1 and April 1, 2007, must be 
excluded from a budget neutrality adjustment, and all other adjustments 
to the wage index are subject to budget neutrality. Rather than 
calculating two different conversion factors, with different budget 
neutrality adjustments, we are proposing to calculate one budget 
neutrality adjustment that reflects the combined adjustments required 
for the first quarter and last three quarters of the calendar year, 
respectively. We followed the same approach in the FY 2007 IPPS 
proposed rule (71 FR 24087).

E. Proposed Statewide Average Default CCRs

    (If you choose to comment on issues in this section, please include 
the caption ``OPPS: Cost-to-Charge Ratios'' at the beginning of your 
comment.)
    CMS uses CCRs to determine outlier payments, payments for pass-
through devices, and monthly interim transitional corridor payments 
under the OPPS. Some hospitals do not have a valid CCR. These hospitals 
include, but are not limited to, hospitals that are new and have not 
yet submitted a cost report, hospitals that have a CCR that falls 
outside predetermined floor and ceiling thresholds for a valid CCR, or 
hospitals that have recently given up their all-inclusive rate status. 
Last year, we updated the default urban and rural CCRs for CY 2006 in 
our final rule, published on November 10, 2005 (70 FR 68553 through 
68555). In this proposed rule, we are proposing to update the default 
ratios for CY 2007 using the most recent cost report data.
    We calculated the statewide default CCRs using the same overall 
CCRs that we use to adjust charges to costs on claims data. Please 
refer to section II.A.1.c. of this preamble for a discussion of our 
proposed revision to the overall CCR calculation. Table 4 lists the 
proposed CY 2007 default urban and rural CCRs by State and compares 
them to last year's default CCRs. These CCRs are the ratio of total 
costs to total charges from each provider's most recently submitted 
cost report, for those cost centers relevant to outpatient services 
weighted by Medicare Part B charges. We also adjusted these ratios to 
reflect final settled status by applying the differential between 
settled to submitted costs and charges from the most recent pair of 
settled to submitted cost reports.
    For this proposed rule, 81.79 percent of the submitted cost reports 
represented data for CY 2004. We only used valid CCRs to calculate 
these default ratios. That is, we removed the CCRs for all-inclusive 
hospitals, CAHs, and hospitals in Guam and the U.S. Virgin Islands 
because these entities are not paid under the OPPS, or in the case of 
all-inclusive hospitals, because their CCRs are suspect. We further 
identified and removed any obvious error CCRs and trimmed any outliers. 
We limited the hospitals used in the calculation of the default CCRs to 
those hospitals that billed for services under the OPPS during CY 2004.
    Finally, we calculated an overall average CCR, weighted by a 
measure of volume for CY 2004, for each State except Maryland. This 
measure of volume is the total lines on claims and is the same one that 
we use in our impact tables. For Maryland, we used an overall weighted 
average CCR for all hospitals in the Nation as a substitute for 
Maryland CCRs, which appear in Table 4. Very few providers in Maryland 
are eligible to receive payment under the OPPS, which limits the data 
available to calculate an accurate and representative CCR. The observed 
differences between last year's default statewide CCRs and the proposed 
CCRs are a combination of the general decline in the ratio between 
costs and charges widely observed in the cost report data and the 
change in the proposed overall CCR calculation.

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    As stated above, CMS uses default statewide CCRs for several groups 
of hospitals, including, but not limited to, hospitals that are new and 
have not yet submitted a cost report, hospitals that have a CCR that 
falls outside predetermined floor and ceiling thresholds for a valid 
CCR, and hospitals that have recently given up their all-inclusive rate 
status. Current OPPS policy also requires hospitals that experience a 
change of ownership, but that do not accept assignment of the previous 
hospital's provider agreement, to use the previous provider's CCR.
    For CY 2007, we are proposing to apply this treatment of using the 
default statewide CCR to include an entity that has not accepted 
assignment of an existing hospital's provider agreement in accordance 
with 42 CFR 489.18, and that has not yet submitted its first Medicare 
cost report. We are proposing that this policy be effective for 
hospitals experiencing a change of ownership on or after January 1, 
2007. We believe that a hospital that has not accepted assignment of an 
existing hospital's provider agreement is similar to a new hospital 
that will establish its own costs and charges. We believe that the 
hospital that has chosen not to accept assignment may have different 
costs and charges than the existing hospital. Furthermore, we believe 
that the hospital should be provided time to establish its own costs 
and charges. Therefore, we are proposing to use the default statewide 
CCR to determine cost-based payments until the hospital has submitted 
its first Medicare cost report.

F. OPPS Payments to Certain Rural Hospitals

    (If you choose to comment on issues in this section, please include 
the caption ``OPPS: Rural Hospitals Hold Harmless Transitional 
Payments'' at the beginning of your comment.)
1. Hold Harmless Transitional Payment Changes Made by Pub. L. 109-171 
(DRA)
    When the OPPS was implemented, every provider was eligible to 
receive an additional payment adjustment (transitional corridor 
payment) if the payments it received for covered OPD services under the 
OPPS were less than the payments it would have received for the same 
services under the prior reasonable cost-based system. Section 
1833(t)(7) of the Act provides that the transitional corridor payments 
are temporary payments for most providers, with two exceptions, to ease 
their transition from the prior reasonable cost-based payment system to 
the OPPS system. Cancer hospitals and children's hospitals receive the 
transitional corridor payments on a permanent basis. Section 
1833(t)(7)(D)(i) of the Act originally provided for transitional 
corridor payments to rural hospitals with 100 or fewer beds for covered 
OPD services furnished before January 1, 2004. However, section 411 of 
Pub. L. 108-173 amended section 1833(t)(7)(D)(i) of the Act to extend 
these payments through December 31, 2005, for rural hospitals with 100 
or fewer beds. Section 411 also extended the transitional corridor 
payments to sole community hospitals (SCHs) located in rural areas for 
services furnished during the period that begins with the provider's 
first cost reporting period beginning on or after January 1, 2004, and 
ends on December 31, 2005. Accordingly, the authority for making 
transitional corridor payments under section 1833(t)(7)(D)(i) of the 
Act, as amended by section 411 of Pub. L. 108-173, expired for rural 
hospitals having 100 or fewer beds and SCHs located in rural areas on 
December 31, 2005.
    Section 5105 of Pub. L. 109-171 reinstituted the hold harmless 
transitional outpatient payments (TOPs) for covered OPD services 
furnished on or after January 1, 2006, and before January 1, 2009, for 
rural hospitals having 100 or fewer beds that are not SCHs. When the 
OPPS payment is less than the payment the provider would have received 
under the previous reasonable cost-based system, the amount of payment 
is increased by 95 percent of the amount of the difference between 
those two payment systems for CY 2006, by 90 percent of the amount of 
that difference for CY 2007, and by 85 percent of the amount of that 
difference for CY 2008.
    For CY 2006, we have implemented section 5106 of Pub. L. 109-171 
through Transmittal 877, issued on February 24, 2006. We did not 
specifically address whether TOPs payments apply to EACHs, which are 
considered to be SCHs under section 1886(d)(5)(D)(iii)(III) of the Act. 
Accordingly, under the statute, EACHs are treated as SCHs. Therefore, 
we believe that EACHs are not eligible for TOPs payment under Pub. L. 
109-171. We are proposing to update Sec.  419.70(d)

[[Page 49546]]

to reflect the requirements of Pub. L. 109-171.
2. Proposed Adjustment for Rural SCHs Implemented in CY 2006 Related to 
Pub. L. 108-173 (MMA)
    (If you choose to comment on issues in this section, please include 
the caption ``OPPS: Rural SCH Payments'' at the beginning of your 
comment.)
    In the CY 2006 OPPS final rule with comment period (70 FR 68556), 
we finalized a payment increase for rural SCHs of 7.1 percent for all 
services and procedures paid under the OPPS, excluding drugs, 
biologicals, brachytherapy seeds, and services paid under pass-through 
payment policy in accordance with section 1833(t)(13)(B) of the Act, as 
added by section 411 of Pub. L. 108-173. Section 411 gave the Secretary 
the authority to make an adjustment to OPPS payments for rural 
hospitals effective January 1, 2006 if justified by a study of the 
difference in costs by APC between hospitals in rural and urban areas. 
Our analysis showed a difference in costs only for rural SCHs and we 
implemented a payment adjustment for those hospitals beginning January 
1, 2006.
    We recently became aware that we did not specifically address 
whether the adjustment applies to EACHs, which are considered to be 
SCHs pursuant to section 1886(d)(5)(D)(iii)(III) of the Act. Thus, 
under the statute, EACHs are treated as SCHs. Currently, fewer than 10 
hospitals are classified as EACHs. As of CY 1998, under section 4201(c) 
of Pub. L. 105-33, a hospital can no longer become newly classified as 
an EACH. Therefore, for purposes of receiving this rural adjustment, we 
are clarifying that EACHs are treated as SCHs for purposes of receiving 
this adjustment, assuming these entities otherwise meet the rural 
adjustment criteria.
    This adjustment is budget neutral and applied before calculating 
outliers and coinsurance. We also stated that we would not reestablish 
the adjustment amount on an annual basis, but that we might review the 
adjustment in the future and, if appropriate, would revise the 
adjustment. For CY 2007, we are proposing to continue our current 
policy of a budget neutral 7.1 percent payment increase for rural SCHs 
for specified services.

G. Proposed CY 2007 Hospital Outpatient Outlier Payments

    (If you choose to comment on issues in this section, please include 
the caption ``Outlier Payments'' at the beginning of your comment.)
    Currently, the OPPS pays outlier payments on a service-by-service 
basis. For CY 2006, the outlier threshold is met when the cost of 
furnishing a service or procedure by a hospital exceeds 1.75 times the 
APC payment amount and exceeds the APC payment rate plus a $1,250 
fixed-dollar threshold. We introduced a fixed-dollar threshold in CY 
2005 in addition to the traditional multiple threshold in order to 
better target outliers to those high cost and complex procedures where 
a very costly service could present a hospital with significant 
financial loss. If a provider meets both of these conditions, the 
multiple threshold and the fixed-dollar threshold, the outlier payment 
is calculated as 50 percent of the amount by which the cost of 
furnishing the service exceeds 1.75 times the APC payment rate. For a 
discussion on CMHC outliers, see section II.B.3. of the preamble to 
this proposed rule.
    As explained in our CY 2006 OPPS final rule with comment period (70 
FR 68561), we set our projected target for aggregate outlier payments 
at 1.0 percent of aggregate total payments under the OPPS. Our outlier 
thresholds were set so that estimated CY 2006 aggregate outlier 
payments would equal 1.0 percent of aggregate total payments under the 
OPPS. In our CY 2006 OPPS final rule with comment period (70 FR 68563), 
we also published total outlier payments as a percent of total 
expenditures for past years. At this time, we do not have a complete 
set of CY 2005 claims in order to produce this number for CY 2005. We 
will report on CY 2005 outlier payments in our CY 2007 OPPS final rule.
    For CY 2007, we are proposing to continue our policy of setting 
aside 1.0 percent of aggregate total payments under the OPPS for 
outlier payments. A portion of that 1.0, an amount equal to 0.25 
percent of outlier payments and 0.0025 percent of total OPPS payments 
would be allocated to CMHCs for partial hospitalization program service 
outliers.
    In order to ensure that estimated CY 2007 aggregate outlier 
payments would equal 1.0 percent of estimated aggregate total payments 
under the OPPS, we are proposing that the outlier threshold be set so 
that outlier payments are triggered when the cost of furnishing a 
service or procedure by a hospital exceeds 1.75 times the APC payment 
amount and exceeds the APC payment rate plus a $1,825 fixed-dollar 
threshold.
    We calculated the fixed-dollar threshold for this proposed rule 
using the same methodology as we did in CY 2006 except we used the 
revised overall CCR calculation discussed in section II.A.1.c. of this 
preamble. As discussed in section II.A.1.c. of this preamble, we 
discovered that the calculation of the overall CCR that the fiscal 
intermediaries are using to determine outlier payment and payment for 
services paid at charges reduced to cost differs from the overall CCR 
that we traditionally use to model the outlier thresholds. We 
discovered this during our calculations of the outlier threshold for 
our CY 2006 final rule with comment period, and we indicated in our 
preamble discussion for that rule, that we may revisit the threshold 
estimate in light of identified differences in the overall CCR 
calculation. Because, on average, the overall CCR calculation used by 
the fiscal intermediaries results in higher CCRs than those estimated 
using our ``traditional'' CCR sets, the outlier threshold is too low. 
The OPPS impact table in section XXVII. of this preamble demonstrates 
an estimated payment differential of 0.25 percent of total spending for 
hospital outlier payments in CY 2006 because of the differences in 
overall CCR calculations. The revised overall CCR calculation that we 
are proposing for CY 2007 aligns the two CCR calculations by removing 
allied and nursing health costs for those hospitals with paramedical 
education programs from the fiscal intermediary's CCR calculation and 
weighting our ``traditional'' calculation by total Medicare Part B 
charges. We expected this proposed change in the overall CCR 
calculation to raise the outlier threshold.
    The claims that we use to model each OPPS lag by 2 years. For this 
proposed rule, we used CY 2005 claims to model the CY 2007 OPPS. In 
order to estimate CY 2007 outlier payments for this proposed rule, we 
inflated the charges on the CY 2005 claims using the same inflation 
factor of 1.1515 that we used to estimate the IPPS fixed-dollar outlier 
threshold for the IPPS FY 2007 proposed rule. For 1 year, the inflation 
factor is 1.0757. The methodology for determining this charge inflation 
factor was discussed in the FY 2007 IPPS proposed rule (71 FR 24150). 
As we stated in our CY 2005 final rule with comment period, we believe 
that the use of this charge inflation factor is appropriate for OPPS 
because, with the exception of the routine service cost centers, 
hospitals use the same cost centers to capture costs and charges across 
inpatient and outpatient services (69 FR 65845, November 15, 2004). As 
also noted in the FY 2006 IPPS final rule, we believe that a charge 
inflation factor is more appropriate than an adjustment to costs 
because this methodology closely captures how

[[Page 49547]]

actual outlier payments are made and calculated (70 FR 47495, August 
12, 2005). We then applied the revised overall CCR that we calculated 
from each hospital's most recent cost report (CMS-2552-96) and, if the 
cost report was not settled, we adjusted it by a settled-to-submitted 
ratio. We simulated aggregated outlier payments using these costs for 
several different fixed-dollar thresholds holding the 1.75 multiple 
constant until the total outlier payments equaled 1.0 percent of 
aggregated total OPPS payments. We estimate that a threshold of $1,825 
combined with the multiple threshold of 1.75 times the APC payment rate 
would allocate 1.0 percent of aggregated total OPPS payments to outlier 
payments.
    For CMHCs, in CY 2007 we project the outlier threshold is met when 
the cost of furnishing a service or procedure by a CMHC exceeds 3.40 
times the APC payment rate. If a CMHC provider meets this condition, 
the outlier payment is calculated as 50 percent of the amount by which 
the cost exceeds 3.40 times the APC payment rate. We are proposing to 
continue the same threshold policy for CY 2007 as we have established 
for CY 2006. An explanation for this proposed policy is discussed in 
section II.B.3. the preamble of this proposed rule.
    The following is an example of an outlier calculation for CY 2007 
under our proposed policy. A hospital charges $20,000 for a procedure. 
The wage adjusted, and rural adjusted, if applicable, APC payment for 
the procedure is $3,500. Using the provider's CCR of 0.35, the 
estimated cost to the hospital is $7,000 (0.35 x $20,000). To determine 
whether this provider is eligible for outlier payments for this 
procedure, the provider must determine whether the cost for the service 
exceeds both the APC outlier cost threshold (1.75 x APC payment) and 
the fixed-dollar threshold ($1,825 + APC payment). In this example, the 
provider meets both criteria:
    (1) $7,000 exceeds $6,125 (1.75 x $3,500)
    (2) $7,000 exceeds $5,325 ($3,500 + $1,825)
    To calculate the outlier payment, which is 50 percent of the amount 
by which the cost of furnishing the service exceeds 1.75 times the APC 
rate, subtract $6,125 (1.75 x $3,500) from $7,000 (resulting in $825). 
The provider is eligible for 50 percent of the difference, in this case 
$437.50 ($825/2). The formula is (cost - (1.75 x APC payment rate))/2.

H. Calculation of the Proposed OPPS National Unadjusted Medicare 
Payment

    (If you choose to comment on issues in this section, please include 
the caption ``OPPS: National Unadjusted Medicare Payment'' at the 
beginning of your comment.)
    The basic methodology for determining prospective payment rates for 
OPD services under the OPPS is set forth in existing regulations at 
Sec.  419.31 and Sec.  419.32. The payment rate for services and 
procedures for which payment is made under the OPPS is the product of 
the conversion factor calculated in accordance with section II.C. of 
this proposed rule and the relative weight determined under section 
II.A. of this proposed rule. Therefore, the national unadjusted payment 
rate for APCs contained in Addendum A to this proposed rule and for 
HCPCS codes to which payment under the OPPS has been assigned in 
Addendum B to this proposed rule (Addendum B is provided as a 
convenience for readers) was calculated by multiplying the proposed CY 
2007 scaled weight for the APC by the proposed CY 2007 conversion 
factor.
    However, to determine the payment that will be made in a calendar 
year under the OPPS to a specific hospital for an APC for a service 
other than a drug, in a circumstance in which the multiple procedure 
discount does not apply, we take the following steps:
    Step 1. Calculate 60 percent (the labor-related portion) of the 
national unadjusted payment rate. Since the initial implementation of 
the OPPS, we have used 60 percent to represent our estimate of that 
portion of costs attributable, on average, to labor. (Refer to the 
April 7, 2000 final rule with comment period (65 FR 18496 through 
18497) for a detailed discussion of how we derived this percentage.)
    Step 2. Determine the wage index area in which the hospital is 
located and identify the wage index level that applies to the specific 
hospital. The wage index values assigned to each area reflect the new 
geographic statistical areas as a result of revised OMB standards 
(urban and rural) to which hospitals are assigned for FY 2007 under the 
IPPS, reclassifications through the Medicare Classification Geographic 
Review Board, section 1866(d)(8)(B) ``Lugar'' hospitals, and section 
401 of Pub. L. 108-173, and the reclassifications of hospitals under 
the one-time appeals process under section 508 of Pub. L. 108-173. The 
wage index values include the occupational mix adjustment described in 
section II.D. of this proposed rule that was developed for the proposed 
FY 2007 IPPS payment rates. We note that the original proposal for 
calculating the FY 2007 IPPS wage index has been recently changed. 
(Refer to the May 17, 2006 FY 2007 IPPS proposed rule, 71 FR 28644).) 
Final FY 2007 IPPS wage indices will be adjusted 100 percent for 
differences in occupational mix. Although we have not incorporated 
those changes in this proposed rule due to the availability of new 
survey data, as is our practice, we propose to adopt changes made to 
the FY 2007 IPPS wage index values after they have been finalized.
    Step 3. Adjust the wage index of hospitals located in certain 
qualifying counties that have a relatively high percentage of hospital 
employees who reside in the county, but who work in a different county 
with a higher wage index, in accordance with section 505 of Pub. L. 
108-173. Addendum L contains the qualifying counties and the proposed 
wage index increase developed for the FY 2007 IPPS. This step is to be 
followed only if the hospital has chosen not to accept reclassification 
under Step 2 above.
    Step 4. Multiply the applicable wage index determined under Steps 2 
and 3 by the amount determined under Step 1 that represents the labor-
related portion of the national unadjusted payment rate.
    Step 5. Calculate 40 percent (the nonlabor-related portion) of the 
national unadjusted payment rate and add that amount to the resulting 
product of Step 4. The result is the wage index adjusted payment rate 
for the relevant wage index area.
    Step 6. If a provider is a SCH, as defined in Sec.  419.92, and 
located in a rural area, as defined in Sec.  412.63(b), or is treated 
as being located in a rural area under Sec.  412.103 of the Act, 
multiply the wage index adjusted payment rate by 1.071 to calculate the 
total payment.

I. Proposed Beneficiary Copayments for CY 2007

    (If you choose to comment on issues in this section, please include 
the caption ``OPPS: Beneficiary Copayments'' at the beginning of your 
comment.)
1. Background
    Section 1833(t)(3)(B) of the Act requires the Secretary to set 
rules for determining copayment amounts to be paid by beneficiaries for 
covered OPD services. Section 1833(t)(8)(C)(ii) of the Act specifies 
that the Secretary must reduce the national unadjusted copayment amount 
for a covered OPD service (or group of such services) furnished in a 
year in a manner so that the effective copayment rate

[[Page 49548]]

(determined on a national unadjusted basis) for that service in the 
year does not exceed specified percentages. For all services paid under 
the OPPS in CY 2007, and in calendar years thereafter, the specified 
percentage is 40 percent of the APC payment rate (section 
1833(t)(8)(C)(ii)(V) of the Act). Section 1833(t)(3)(B)(ii) of the Act 
provides that, for a covered OPD service (or group of such services) 
furnished in a year, the national unadjusted coinsurance amount cannot 
be less than 20 percent of the OPD fee schedule amount.
2. Proposed Copayment for CY 2007
    For CY 2007, we are proposing to determine copayment amounts for 
new and revised APCs using the same methodology that we implemented for 
CY 2004 (Refer to the November 7, 2003 OPPS final rule with comment 
period, 68 FR 63458.) The proposed unadjusted copayment amounts for 
services payable under the OPPS that would be effective January 1, 
2007, are shown in Addendum A and Addendum B of this proposed rule.
3. Calculation of a Proposed Adjusted Copayment Amount for an APC Group 
for CY 2007
    To calculate the OPPS adjusted copayment amount for an APC group, 
take the following steps:
    Step 1. Calculate the beneficiary payment percentage for the APC by 
dividing the APC's national unadjusted copayment by its payment rate. 
For example, using APC 0001, $7.00 is 23 percent of $30.14.
    Step 2. Calculate the wage adjusted payment rate for the APC, for 
the provider in question, as indicated in section II.H. of this 
preamble. Calculate the rural adjustment for eligible providers as 
indicated in section II.H. of this preamble.
    Step 3. Multiply the percentage calculated in Step 1 by the payment 
rate calculated in Step 2. The result is the wage-adjusted copayment 
amount for the APC.

III. Proposed OPPS Ambulatory Payment Classification (APC) Group 
Policies

A. Proposed Treatment of New HCPCS and CPT Codes

    (If you choose to comment on issues in this section, please include 
the caption ``OPPS: New HCPCS and CPT Codes'' at the beginning of your 
comment.)
1. Proposed Treatment of New HCPCS Codes Included in the Second and 
Third Quarterly OPPS Updates for CY 2006
    During the second and third quarters of CY 2006, we created a total 
of four new Level II HCPCS codes that were not addressed in the 
November 10, 2005 final rule with comment period that updated the CY 
2006 OPPS. We have designated the payment status of those codes and 
added them either through the April update (Transmittal 896, dated 
March 24, 2006) or the July update of the CY 2006 OPPS (Transmittal 
970, dated May 30, 2006). In this proposed rule, we are soliciting 
public comments on the status indicators and APC assignments of these 
services, which are listed in Table 5. Because of the timing of this 
proposed rule, those codes implemented through the July 2006 OPPS 
update are not included in Addendum B of this proposed rule, while 
those codes based upon the April 2006 OPPS update are included in 
Addendum B. We intend to finalize the assignments for all of these 
services in the OPPS CY 2007 final rule.

                           Table 5.--New HCPCS Codes Implemented in April or July 2006
----------------------------------------------------------------------------------------------------------------
                                                          Assigned status
          HCPCS code                  Description            indicator       Assigned APC    Implementation date
----------------------------------------------------------------------------------------------------------------
C9227.........................  Injection, micafungin   G                             9227  April 1, 2006.
                                 sodium, per 1 mg.
C9228.........................  Injection,              G                             9228  April 1, 2006.
                                 tigecycline, per 1 mg.
C9229.........................  Injection ibandronate   G                             9229  July 1, 2006.
                                 sodium.
C9230.........................  Injection, abatacept..  G                             9230  July 1, 2006.
----------------------------------------------------------------------------------------------------------------

2. Proposed Treatment of New CY 2007 Category I and III CPT Codes and 
Level II HCPCS Codes
    As has been our practice in the past, we implement new Category I 
and III CPT codes and new Level II HCPCS codes, which are released in 
the fall of each year for annual updating, effective January 1 in the 
final rule updating the OPPS for the following calendar year. These 
codes are flagged with Comment Indicator ``NI'' in Addendum B of the 
OPPS final rule to indicate that we are assigning them an interim 
payment status which is subject to public comment following publication 
of the final rule that implements the annual OPPS update. (See the 
discussion immediately below concerning our modified policy for 
implementing new Category I and III mid-year CPT codes.) We are 
proposing to continue this recognition and process for CY 2007. New 
Category I and III CPT codes and new Level II HCPCS codes, effective 
January 1, 2007, will be designated in Addendum B of the CY 2007 OPPS 
final rule with Comment Indicator ``NI.'' The status indicator, the APC 
assignment, or both for all such codes flagged with Comment Indicator 
``NI,'' will be open to public comment. We will respond to all comments 
received in a subsequent final rule.
3. Proposed Treatment of New Mid-Year CPT Codes
    Twice each year, the AMA issues Category III CPT codes, which the 
AMA defines as temporary codes for emerging technology, services, and 
procedures. (In addition, AMA issues mid-year Category I CPT codes for 
vaccines for which FDA approval is imminent, to ensure timely 
availability of a code.) The AMA establishes these codes to allow 
collection of data specific to the service described by the code, as 
these services could otherwise only be reported using a Category I CPT 
unlisted code. The AMA releases Category III CPT codes in January, for 
implementation beginning the following July, and in July, for 
implementation beginning the following January. Prior to CY 2006, we 
treated new Category III CPT codes implemented in July of the previous 
year or January of the OPPS update year in the same manner that new 
Category I CPT codes and new Level II HCPCS codes implemented in 
January of the OPPS update year are treated; that is, we provided APC 
and status indicator assignments or both in the final rule updating the 
OPPS for the following calendar year. New Category I and Category III 
CPT codes, as well as new Level II HCPCS codes, were flagged with 
Comment Indicator ``NI'' in Addendum B of the final rule to indicate 
that we were assigning them an

[[Page 49549]]

interim payment status which was subject to public comment following 
publication of the final rule that implemented the annual OPPS update.
    As stated in the CY 2006 OPPS final rule with comment period (70 FR 
68567), we modified our process for implementing the Category III codes 
that the AMA releases each January for implementation in July to ensure 
timely collection of data pertinent to the services described by the 
codes; to ensure patient access to the services the codes describe; and 
to eliminate potential redundancy between Category III CPT codes and 
some of the C-codes, which are payable under the OPPS and created by us 
in response to applications for new technology services. Therefore, 
beginning on July 1, 2006, we implemented in the OPPS seven Category 
III CPT codes that the AMA released in January 2006 for implementation 
in July 2006. The codes are shown in Table 6. These codes are not 
included in Addendum B of this proposed rule, which is based upon the 
April 2006 OPPS update. In this proposed rule, we are soliciting public 
comments on the status indicators and, if applicable, the APC 
assignments of these services. We intend to finalize the assignments of 
these Category III CPT codes implemented in July 2006 in the CY 2007 
OPPS final rule.

                            Table 6.--Category III CPT Codes Implemented in July 2006
----------------------------------------------------------------------------------------------------------------
              HCPCS code                       Long descriptor              Status indicator            APC
----------------------------------------------------------------------------------------------------------------
0155T.................................  Laparoscopy, surgical,         T                                    0130
                                         implantation or replacement
                                         of gastric stimulation
                                         electrodes, lesser curvature
                                         (i.e., morbid obesity).
0156T.................................  Laparoscopy, surgical,         T                                    0130
                                         revision or removal of
                                         gastric stimulation
                                         electrodes, lesser curvature
                                         (i.e., morbid obesity).
0157T.................................  Laparotomy, implantation or    C                          ..............
                                         replacement of gastric
                                         stimulation electrodes,
                                         lesser curvature (i.e.,
                                         morbid obesity).
0158T.................................  Laparotomy, revision or        C                          ..............
                                         removal of gastric
                                         stimulation electrodes,
                                         lesser curvature (i.e.,
                                         morbid obesity).
0159T.................................  Computer aided detection,      N                          ..............
                                         including computer algorithm
                                         analysis of MRI image data
                                         for lesion detection/
                                         characterization,
                                         pharmacokinetic analysis,
                                         with further physician
                                         review for interpretation,
                                         breast MRI.
0160T.................................  Therapeutic repetitive         X                                    0340
                                         transcranial magnetic
                                         stimulation treatment
                                         planning.
0161T.................................  Therapeutic repetitive         X                                    0340
                                         transcranial magnetic
                                         stimulation treatment
                                         delivery and management, per
                                         session.
----------------------------------------------------------------------------------------------------------------

    Some of the new Category III CPT codes describe services that we 
have determined to be similar in clinical characteristics and resource 
use to HCPCS codes in an existing APC. In these instances, we may 
assign the Category III CPT code to the appropriate clinical APC. Other 
Category III CPT codes describe services that we have determined are 
not compatible with an existing clinical APC, yet are appropriately 
provided in the hospital outpatient setting. In these cases, we may 
assign the Category III CPT code to what we estimate is an 
appropriately priced New Technology APC. In other cases, we may assign 
a Category III CPT code one of several nonseparately payable status 
indicators, including N, C, B, or E, which we believe is appropriate 
for the specific code. We expect that we will have received 
applications for new technology status for some of the services 
described by new Category III CPT codes, which may assist us in 
determining appropriate APC assignments. If the AMA establishes a 
Category III CPT code for a service for which an application has been 
submitted to CMS for new technology status, CMS may not have to issue a 
temporary Level II HCPCS code to describe the service, as has often 
been the case in the past when Category III CPT codes were only 
recognized by the OPPS on an annual basis.
    Therefore, for CY 2007, we are proposing to include in Addendum B 
of the OPPS CY 2007 final rule the new Category III CPT codes and the 
new Category I CPT codes for vaccines released in January 2006 for 
implementation on July 1, 2006 (through the OPPS quarterly update 
process) and the Category III and vaccine Category I CPT codes released 
in July 2006 for implementation on January 1, 2007. However, only those 
new Category III codes and the new vaccine codes implemented effective 
January 1, 2007, will be flagged with Comment Indicator ``NI'' in 
Addendum B of the CY 2007 final rule to indicate that we are assigning 
them an interim payment status which is subject to public comment. As 
discussed earlier, Category III codes and Category I vaccine codes 
implemented in July 2006, which are listed in Table 6, are subject to 
comment through this proposed rule and their status will be made final 
in the CY 2007 OPPS final rule.

B. Proposed Changes--Variations Within APCs

    (If you choose to comment on issues in this section, please include 
the caption ``OPPS: 2 Times Rule'' at the beginning of your comment.)
1. Background
    Section 1833(t)(2)(A) of the Act requires the Secretary to develop 
a classification system for covered hospital outpatient services. 
Section 1833(t)(2)(B) of the Act provides that this classification 
system may be composed of groups of services, so that services within 
each group are comparable clinically and with respect to the use of 
resources. In accordance with these provisions, we developed a grouping 
classification system, referred to as the Ambulatory Payment 
Classification Groups (or APCs), as set forth in Sec.  419.31 of the 
regulations. We use Level I and Level II HCPCS codes and descriptors to 
identify and group the services within each APC. The APCs are organized 
such that each group is homogeneous both clinically and in terms of 
resource use. Using this classification system, we have established 
distinct groups of surgical, diagnostic, and partial hospitalization 
services, as well as medical visits. We also have developed separate 
APC groups for certain medical devices, drugs, biologicals, 
radiopharmaceuticals, and brachytherapy devices.
    We have packaged into each procedure or service within an APC group 
the costs associated with those items or services that are directly 
related and integral to performing a procedure

[[Page 49550]]

or furnishing a service. Therefore, we do not make separate payment for 
packaged items or services. For example, packaged items and services 
include: (1) Use of an operating, treatment, or procedure room; (2) use 
of a recovery room; (3) most observation services; (4) anesthesia; (5) 
medical/surgical supplies; (6) pharmaceuticals (other than those for 
which separate payment may be allowed under the provisions discussed in 
section V of this preamble); and (7) incidental services such as 
venipuncture. Our packaging methodology is discussed in section II.A. 
of this proposed rule.
    Under the OPPS, we pay for hospital outpatient services on a rate-
per-service basis that varies according to the APC group to which the 
service is assigned. Each APC weight represents the hospital median 
cost of the services included in that APC relative to the hospital 
median cost of the services included in APC 0606. The APC weights are 
scaled to APC 0606 because we are proposing it to be the middle level 
clinic visit APC (that is, where the Level III Clinic Visit HCPCS code 
of five proposed levels of clinic visits is assigned), and because 
middle level clinic visits are among the most frequently furnished 
services in the outpatient hospital setting. See section II.A.3. of 
this preamble for a complete discussion of the reasons for choosing APC 
0606 as the basis for scaling the APC relative weights.
    Section 1833(t)(9)(A) of the Act requires the Secretary to review 
the components of the OPPS not less than annually and to revise the 
groups and relative payment weights and make other adjustments to take 
into account changes in medical practice, changes in technology, and 
the addition of new services, new cost data, and other relevant 
information and factors. Section 1833(t)(9)(A) of the Act, as amended 
by section 201(h) of the BBRA of 1999, also requires the Secretary, 
beginning in CY 2001, to consult with an outside panel of experts to 
review the APC groups and the relative payment weights (the APC Panel 
recommendations for specific services for CY 2007 OPPS and our 
responses to them are discussed in section III.D. of this preamble).
    Finally, as discussed earlier, section 1833(t)(2) of the Act 
provides that, subject to certain exceptions, the items and services 
within an APC group cannot be considered comparable with respect to the 
use of resources if the highest median (or mean cost, if elected by the 
Secretary) for an item or service in the group is more than 2 times 
greater than the lowest median cost for an item or service within the 
same group (referred to as the ``2 times rule''). We use the median 
cost of the item or service in implementing this provision. The statute 
authorizes the Secretary to make exceptions to the 2 times rule in 
unusual cases, such as low-volume items and services.
2. Application of the 2 Times Rule
    In accordance with section 1833(t)(2) of the Act and Sec.  419.31 
of the regulations, we annually review the items and services within an 
APC group to determine, with respect to comparability of the use of 
resources, if the median of the highest cost item or service within an 
APC group is more than 2 times greater than the median of the lowest 
cost item or service within that same group (``2 times rule''). We make 
exceptions to this limit on the variation of costs within each APC 
group in unusual cases such as low-volume items and services.
    During the APC Panel's March 1-2, 2006 meeting, we presented median 
cost and utilization data for services furnished during the period of 
January 1, 2005, through September 30, 2005, about which we had 
concerns or about which the public had raised concerns regarding their 
APC assignments, status indicator assignments, or payment rates. The 
discussions of service-specific issues, the APC Panel recommendations 
if any, and our proposals for CY 2007 are contained in section III.D. 
of this preamble.
    In addition to the assignment of specific services to APCs which we 
discussed with the APC Panel, we also identified APCs with 2 times 
violations that were not specifically discussed with the APC Panel but 
for which we are proposing changes to their HCPCS codes' APC 
assignments in Addendum B of this proposed rule. In these cases, to 
eliminate a 2 times violation, we reassigned the codes to APCs that 
contained services that were similar with regard to both resource use 
and clinical homogeneity. We also are proposing changes to the status 
indicators for some codes that are not specifically and separately 
discussed in this proposed rule. In these cases, we changed the status 
indicators for some codes because we thought that another status 
indicator more accurately describes their payment status from an OPPS 
perspective based on our CY 2007 proposed policies.
    Addendum B of this proposed rule identifies with a comment 
indicator ``CH'' those HCPCS codes for which we are proposing a change 
to the APC assignment or status indicator as assigned in the January 
2006 Addendum B. These proposed reassignments of APC or status 
indicator are subject to public comment under this proposed rule.
3. Exceptions to the 2 Times Rule
    As discussed earlier, we may make exceptions to the 2 times limit 
on the variation of costs within each APC group in unusual cases such 
as low-volume items and services. Taking into account the APC changes 
that we are proposing for CY 2007 based on the APC Panel 
recommendations discussed in section III.D. of this preamble, the 
proposed changes to status indicators and APC assignments as identified 
in Addendum B, and the use of CY 2005 claims data to calculate the 
median costs of procedures classified in the APCs, we reviewed all the 
APCs to determine which APCs would not satisfy the 2 times rule. We 
used the following criteria to decide whether to propose exceptions to 
the 2 times rule for affected APCs:
     Resource homogeneity
     Clinical homogeneity
     Hospital concentration
     Frequency of service (volume)
     Opportunity for upcoding and code fragments.
    For a detailed discussion of these criteria, refer to the April 7, 
2000 OPPS final rule with comment period (65 FR 18457).
    Table 7 lists the APCs that we are proposing to exempt from the 2 
times rule based on the criteria cited above. For cases in which a 
recommendation by the APC Panel appeared to result in or allow a 
violation of the 2 times rule, we generally accepted the APC Panel's 
recommendation because those recommendations were based on explicit 
consideration of resource use, clinical homogeneity, hospital 
specialization, and the quality of the data used to determine the APC 
payment rates that we are proposing for CY 2007. The median costs for 
hospital outpatient services for these and all other APCs which were 
used in development of this proposed rule can be found on the CMS Web 
site: http://www.cms.hhs.gov.


[[Page 49551]]



    Table 7.--Proposed APC Exceptions to the 2 Times Rule for CY 2007
------------------------------------------------------------------------
                APC                            APC description
------------------------------------------------------------------------
0007..............................  Level II Incision & Drainage.
0010..............................  Level I Destruction of Lesion.
0019..............................  Level I Excision/Biopsy.
0024..............................  Level I Skin Repair.
0031..............................  Smoking Cessation Services.
0040..............................  Percutaneous Implantation of
                                     Neurostimulator Electrodes,
                                     Excluding Cranial Nerve.
0043..............................  Closed Treatment Fracture Finger/Toe/
                                     Trunk.
0058..............................  Level I Strapping and Cast
                                     Application.
0060..............................  Manipulation Therapy.
0081..............................  Non-Coronary Angioplasty or
                                     Atherectomy.
0085..............................  Level II Electrophysiologic
                                     Evaluation.
0093..............................  Vascular Reconstruction/Fistula
                                     Repair without Device.
0105..............................  Revision/Removal of Pacemakers,
                                     AICD, or Vascular.
0111..............................  Blood Product Exchange.
0112..............................  Apheresis, Photopheresis, and
                                     Plasmapheresis.
0204..............................  Level I Nerve Injections.
0235..............................  Level I Posterior Segment Eye
                                     Procedures.
0245..............................  Level I Cataract Procedures without
                                     IOL Insert.
0251..............................  Level I ENT Procedures.
0252..............................  Level II ENT Procedures.
0274..............................  Myelography.
0303..............................  Treatment Device Construction.
0307..............................  Myocardial Positron Emission
                                     Tomography (PET) Imaging.
0312..............................  Radioelement Applications.
0323..............................  Extended Individual Psychotherapy.
0330..............................  Dental Procedures.
0409..............................  Red Blood Cell Tests.
0418..............................  Insertion of Left Ventricular Pacing
                                     Elect.
0432..............................  Health and Behavior Services.
0437..............................  Level II Drug Administration.
0604..............................  Level I Clinic Visits.
0664..............................  Level I Proton Beam Radiation
                                     Therapy.
------------------------------------------------------------------------

C. New Technology APCs

    (If you choose to comment on issues in this section, please include 
the caption ``New Technology APCs'' at the beginning of your comment.)
1. Introduction
    In the November 30, 2001 final rule (66 FR 59903), we finalized 
changes to the time period a service was eligible for payment under a 
New Technology APC. Beginning in CY 2002, we retain services within New 
Technology APC groups until we gather sufficient claims data to enable 
us to assign the service to a clinically appropriate APC. This policy 
allows us to move a service from a New Technology APC in less than 2 
years if sufficient data are available. It also allows us to retain a 
service in a New Technology APC for more than 3 years if sufficient 
data upon which to base a decision for reassignment have not been 
collected. We note that the cost bands for new technology APCs range 
from $0 to $50 in increments of $10, from $50 to $100 in an increment 
of $50, from $100 through $2,000 in intervals of $100, and from $2,000 
through $6,000 in intervals of $500. These intervals, which are in two 
parallel sets of New Technology APCs, one with status indicator ``S'' 
and the other with status indicator ``T,'' allow us to price new 
technology services more appropriately and consistently.
    Every year we receive many requests for higher payment amounts for 
specific procedures under the OPPS because they require the use of 
expensive equipment. We are taking this opportunity to reiterate our 
response in general to the issue of hospitals' capital expenditures as 
they relate to the OPPS and Medicare.
    Under the OPPS, one of our goals is to make payments that are 
appropriate for the services that are necessary for treatment of 
Medicare beneficiaries. The OPPS like other Medicare payment systems is 
budget neutral and so, although we do not pay full hospital costs for 
procedures, we believe that our payment rates generally reflect the 
costs that are associated with providing care to Medicare beneficiaries 
in cost-efficient settings. Further, we believe that our rates are 
adequate to assure access to services for most beneficiaries.
    For many emerging technologies there is a transitional period 
during which utilization may be low, often because providers are first 
learning about the techniques and their clinical utility. Quite often, 
the requests for higher payment amounts are for new procedures in that 
transitional phase. These requests, and their accompanying estimates 
for expected Medicare beneficiary or total patient utilization, often 
reflect very low rates of patient use, resulting in high per use costs 
for which requesters believe Medicare should make full payment. 
Medicare does not, and we believe should not, assume responsibility for 
more than its share of the costs of procedures based on Medicare 
beneficiary projected utilization and does not set its payment rates 
based on initial projections of low utilization for services that 
require expensive capital equipment. For the OPPS, we rely on hospitals 
to make their business decisions regarding acquisition of high cost 
capital equipment taking into consideration their knowledge about their 
entire patient base (Medicare beneficiaries included) and an 
understanding of Medicare's and other payers' payment policies.
    We note that in a budget neutral environment, payments may not 
fully cover hospitals' costs, including those for the purchase and 
maintenance of capital equipment. We rely on providers to make their 
decisions regarding the acquisition of high cost equipment with the 
understanding that the Medicare

[[Page 49552]]

program must be careful to establish its initial payment rates for new 
services that lack hospital claims data based on realistic utilization 
projections for all such services delivered in cost-efficient hospital 
outpatient settings. As the OPPS acquires claims data regarding 
hospital costs associated with new procedures, we will regularly 
examine the claims data and any available new information regarding the 
clinical aspects of new procedures to confirm that our OPPS payments 
remain appropriate for procedures as they transition into mainstream 
medical practice.
2. Proposed Movement of Procedures From New Technology APCs to Clinical 
APCs
    As we explained in the November 30, 2001 final rule (66 FR 59897), 
we generally keep a procedure in the New Technology APC to which it is 
initially assigned until we have collected data sufficient to enable us 
to move the procedure to a clinically appropriate APC. However, in 
cases where we find that our original New Technology APC assignment was 
based on inaccurate or inadequate information, or where the New 
Technology APCs are restructured, we may, based on more recent resource 
utilization information (including claims data) or the availability of 
refined New Technology APC bands, reassign the procedure or service to 
a different New Technology APC that most appropriately reflects its 
cost.
    The procedures presented below represent services assigned to New 
Technology APCs for CY 2006 for which we believe we have sufficient 
data to reassign them to clinically appropriate APCs for CY 2007. 
Therefore, we are proposing to reassign them to clinically appropriate 
APCs as indicated specifically in our discussion and in Table 10.
a. Nonmyocardial Positron Emission Tomography (PET) Scans
    Positron emission tomography (PET) is a noninvasive diagnostic 
imaging procedure that assesses the level of metabolic activity and 
perfusion in various organ systems of the human body. PET serves an 
important role in the clinical care of many Medicare beneficiaries. We 
recognize that PET is a useful technology in many instances and want to 
ensure that the technology remains available to Medicare beneficiaries 
when medically necessary. Since August 2000, nonmyocardial PET 
procedures have been assigned to a New Technology APC in the OPPS. As a 
result of our collection of 5 full years worth of hospital claims data, 
we believe that we have sufficient data to assign nonmyocardial PET 
scans to a clinically appropriate APC for CY 2007. Note that we assign 
a service to a New Technology APC only when we do not have adequate 
claims data upon which to determine the median cost of performing the 
procedure, and we expect that the service's clinical or resource 
characteristics will differ from all other procedures already assigned 
to clinical APCs. Each New Technology APC represents a particular cost 
band (for example, $1,400-1,500), and we assign procedures to these 
APCs based on our analysis of the procedures' costs. Payment for items 
assigned to a New Technology APC is the midpoint of the band (for 
example, $1,450). We move a service from a New Technology APC to a 
clinical APC when we have adequate claims data upon which to base its 
future payment rate. In the case of nonmyocardial PET services, we 
believe that we now have sufficient data to assign them to a clinically 
appropriate APC.
    We last proposed changes in payments for nonmyocardial PET 
procedures for CY 2005. At that time, while we had large numbers of 
single claims reflecting that the median cost of PET procedures was 
substantially lower than their CY 2004 payment rate of $1,450, we had 
some concerns that abruptly lowering the payment rate for nonmyocardial 
PET scans could hinder access to this technology. Therefore, we 
proposed three options to develop the CY 2005 payment rate for these 
procedures in the August 16, 2004 proposed rule (69 FR 50468). 
Specifically, we proposed the following options and invited comments on 
each of the options.
     Option 1: Continue in CY 2005 the CY 2004 assignment of 
the scans to New Technology APC 1516 prior to assigning to a clinical 
APC.
     Option 2: Assign the PET scans to a clinically appropriate 
APC priced according to the median cost of the scans based on CY 2003 
claims data. Under this option, we would assign PET scans to APC 0420, 
PET imaging.
     Option 3: Transition assignment to a clinical APC in CY 
2006 by setting payment in CY 2005 based on a 50/50 blend of the median 
cost of PET scans and their CY 2004 New Technology payment rate. We 
would assign the scans to New Technology APC 1513 for a blended 
transition payment.
    Based on comments received, we decided to set the CY 2005 payment 
rate for nonmyocardial PET scans based on option 3 at $1,150. We 
further stated in the November 15, 2004 final rule with comment period 
(69 FR 65716) that we believed there were sufficient claims data to 
assign nonmyocardial PET scans to a single clinical APC. However, to 
minimize any potential impact that a payment reduction resulting from 
this move might have had on beneficiary access to this technology, we 
set the CY 2005 OPPS payment rate for nonmyocardial PET scans based on 
a 50/50 blend of their median cost based on CY 2003 claims data and the 
payment rate of the CY 2004 New Technology APC to which they were 
assigned. Therefore, nonmyocardial PET scans were assigned to New 
Technology APC 1513 (New Technology--Level XIV ($1,000-$1,200) for a 
blended payment rate of $1,150 in CY 2005. In CY 2005, in the context 
of an expansion in Medicare coverage for PET procedures, we also 
simplified coding for PET services by instructing hospitals to bill 
several more general CPT codes in place of numerous disease-specific G-
codes. We continued with these coding and payment methodologies in CY 
2006.
    For CY 2007, we are proposing the assignment of nonmyocardial PET 
procedures to a clinically appropriate APC as we have several years of 
robust and stable claims data upon which to determine the median cost 
of performing these procedures. Based on analysis of our claims data, 
the median costs for nonmyocardial PET scans have ranged between 
approximately $852 and $924 for claims submitted from CY 2002 through 
CY 2005, yet our payment rates have been significantly higher than the 
median costs throughout this same time period. We have observed 
significant growth in the number of nonmyocardial PET scans performed 
on Medicare beneficiaries, from about 48,000 in CY 2002, to 68,000 in 
CY 2003, and once again to 121,000 in CY 2004, the year when we first 
reduced the OPPS nonmyocardial PET scan payment rates from $1,450 to 
$1,150. For the CY 2007 proposed rule, we have about 45,000 single PET 
claims from CY 2005, yielding a stable median cost for PET procedures 
of about $867. Although the CY 2005 claims data are not yet complete, 
the apparent decline in numbers of claims for nonmyocardial PET scans 
alone in the CY 2005 claims data is likely related to the large number 
of claims for PET/CT scans now observed in CY 2005, when codes for that 
combined service were first available for billing. In fact, the total 
number of PET scans provided to Medicare beneficiaries in CY 2005, 
defined as PET scans and PET/CT scans, continued to climb to almost 
128,000 based upon the CY 2005 claims data available for this proposed 
rule, in

[[Page 49553]]

comparison to final claims for CY 2004 of approximately 121,000 for PET 
scans.
    Therefore, we are proposing to assign nonmyocardial PET scans, in 
particular, CPT codes 78608, 78811, 78812, and 78813, to new APC 0308 
(Nonmyocardial PET Imaging) with a median cost of $865.30 for CY 2007. 
We are confident, in the face of our stable median costs for 
nonmyocardial PET scans over the past 4 years, that their additional 2-
year period of receiving New Technology APC payments at the blended 
rate of $1,150 for CY 2005 and CY 2006 as we transitioned the services 
to a clinical APC should ensure continued availability of this 
technology now that its services will be paid through a clinical APC 
for CY 2007, like most other OPPS services.
b. PET/Computed Tomography (CT) Scans
    Since August 2000, we have paid separately for PET and CT scans. In 
CY 2004, the payment rate for nonmyocardial PET scans was $1,450, while 
it was $193 for typical diagnostic CT scans. Prior to CY 2005, 
nonmyocardial PET and the PET portion of PET/CT scans were described by 
G-codes for billing to Medicare. Several commenters to the November 15, 
2004 final rule with comment period (69 FR 65682) urged that we replace 
the G-codes for nonmyocardial PET and PET/CT scan procedures with the 
established CPT codes. These commenters stated that movement to the 
established CPT codes would greatly reduce the burden on hospitals of 
tracking and billing the G-codes which are not recognized by other 
payers and would allow for more uniform hospital billing of these 
scans. We agreed with the commenters that movement from the G-codes to 
the established CPT codes for nonmyocardial PET and PET/CT scans would 
allow for more uniform billing of these scans. As a result of a 
Medicare national coverage determination (Publication 100-3, Medicare 
Claims Processing Manual section 220.6) that was made effective January 
28, 2005, we discontinued numerous G-codes that described myocardial 
PET and nonmyocardial PET procedures and replaced them with the 
established CPT codes. The CY 2005 payment rate for concurrent PET/CT 
scans using the CPT codes 78814, 78815, and 78816 was $1,250, which was 
$100 higher than the payment rate for PET scans alone. These PET/CT CPT 
codes were placed in New Technology APC 1514 (New Technology--Level 
XIV, $1,200-$1,300) for CY 2005. We continued with these coding and 
payment methodologies in CY 2006.
    For CY 2007, we are proposing the assignment of concurrent PET/CT 
scans, specifically CPT codes 78814, 78815, and 78816, to a clinically 
appropriate APC because we believe we have adequate claims data from CY 
2005 upon which to determine the median cost of performing these 
procedures. Based on our analysis of CY 2005 single claims, the median 
cost of PET/CT scans is $865 from over almost 64,000 single claims. 
Comparison of the median cost of nonmyocardial PET procedures of $867 
with the median cost of concurrent PET/CT scans demonstrates that the 
median costs of PET scans with or without concurrent CT scans for 
attenuation correction and anatomical localization are about the same. 
This result is not unexpected because many newer PET scanners also have 
the capability of rapidly acquiring CT images for attenuation 
correction and anatomical localization, sometimes with simultaneous 
image acquisition.
    To explore the possibility that the similarity in median costs for 
PET and PET/CT procedures could be related to different groups of 
hospitals billing the two types of PET services based on their 
available equipment, rather than the true comparability of hospital 
resources required for the two types of services, we analyzed claims 
from a subset of hospitals billing both PET and PET/CT scans in CY 
2005. This analysis looked at 362 providers who billed a PET HCPCS code 
and a PET/CT CPT code at least one time each during CY 2005. The median 
cost from this subset of claims for nonmyocardial PET scans was $890, 
in comparison with $863 for the PET/CT scans. Thus, we observed the 
same close relationship between median costs of PET and PET/CT 
procedures from hospitals billing both sets of services as we did for 
all OPPS CY 2005 claims available for this proposed rule for these 
scans. We believe that our claims data accurately reflect the 
comparable hospital resources required to provide PET and PET/CT 
procedures, and the scans have obvious clinical similarity as well. 
Therefore, for CY 2007 we are proposing to assign the CPT codes for 
PET/CT scans, along with the CPT codes for PET scans, to the same new 
APC 0308 (Nonmyocardial PET Imaging) with a median cost of $865.30.
    We note that we have been paying separately for fluorodeoxyglucose 
(FDG), the radiopharmaceutical described by HCPCS code A9552 (F18 fdg), 
that is commonly administered during nonmyocardial PET and PET/CT 
procedures. For CY 2007, we are proposing to continue paying separately 
for FDG, according to the methodology described in section V. (Proposed 
OPPS Payment Changes for Drugs, Biologicals, and Radiopharmaceuticals) 
of the preamble of this proposed rule.
c. Stereotactic Radiosurgery (SRS) Treatment Delivery Services
    For the past several years, we have collected hospital costs 
associated with the planning and delivery of stereotactic radiosurgery 
services (hereafter referred to as SRS). As new technology emerged in 
the field of SRS, public commenters urged us to recognize cost 
differences associated with the various methods of SRS planning and 
delivery. Beginning in CY 2001, we established G-codes to capture any 
such cost variations associated with the various methods of planning 
and delivery of SRS. For CY 2004, based on comments received regarding 
the G-codes used for SRS, we made some modifications to the coding (68 
FR 63431 and 63432). First, we received comments regarding the 
descriptors for HCPCS codes G0173 and G0251, indicating that these 
codes did not distinguish image-guided robotic SRS systems from other 
forms of linear accelerator-based SRS systems to account for the cost 
variation in delivering these services. In response, for CY 2004 we 
created two new G-codes (G0339 and G0340) to describe complete and 
fractionated image-guided robotic linear accelerator-based SRS 
treatment. We placed HCPCS code G0339 in APC 1528 at a payment rate of 
$5,250, and HCPCS code G0340 in APC 1525 at a payment rate of $3,750. 
Second, we received comments on HCPCS code G0242 which requested that 
we modify the code descriptor to avoid confusion and misuse of the 
code, and also to appropriately describe treatment planning for both 
linear accelerator-based and Cobalt 60-based SRS treatments. In 
response, for CY 2004, we created HCPCS code G0338 to distinguish 
linear accelerator-based SRS treatment planning from Cobalt 60-based 
SRS treatment planning. We placed HCPCS code G0338 in APC 1516 at a 
payment rate of $1,450.
    In CY 2005, there were no changes to the coding or New Technology 
APC payment rates for the SRS planning or treatment delivery codes from 
CY 2004. We stated in the CY 2005 OPPS final rule with comment period 
(69 FR 65711) that any SRS code changes would be premature without cost 
data to support a code restructuring. Therefore, we maintained HCPCS 
codes G0173, G0242, G0243, G0251, G0338, G0339, and G0340 in their 
respective New Technology APCs for CY 2005. We further stated that 
until we had completed an analysis of claims for these procedure codes, 
we would

[[Page 49554]]

continue to maintain HCPCS codes G0173, G0242, G0243, G0251, G0338, 
G0339, and G0340 in their respective New Technology APCs for CY 2005 as 
we considered the adoption of CPT codes to describe all SRS procedures 
for CY 2006.
    At its February 2005 meeting, the APC Panel discussed the clinical 
and resource cost similarities between planning for Cobalt 60-based and 
linear accelerator-based SRS. The APC Panel also discussed the use of 
CPT codes instead of specific G-codes to describe the services involved 
in SRS planning, noting the clinical similarities in radiation 
treatment planning regardless of the mode of treatment delivery. Given 
the APC Panel's thoughts about the possible need for CMS to separately 
track planning for SRS, the APC Panel eventually recommended that we 
create a single HCPCS code to encompass both Cobalt 60-based and linear 
accelerator-based SRS planning. Because we had no programmatic need to 
separately track SRS planning services, in the CY 2006 OPPS final rule 
with comment period (70 FR 68585) we discontinued HCPCS codes G0242 and 
G0338 for the reporting of charges for SRS planning and instructed 
hospitals to bill charges for SRS planning, regardless of the mode of 
treatment delivery, using all of the available CPT codes that most 
accurately reflect the services provided.
    Furthermore, the APC Panel recommended that we make no changes to 
the coding or APC placement of SRS treatment delivery HCPCS codes 
G0173, G0243, G0251, G0339, and G0340 for CY 2006. In addition, 
presenters to the APC Panel described ongoing deliberations among 
interested professional societies around the descriptions and coding 
for SRS. The APC Panel and presenters suggested that we wait for the 
outcome of these deliberations before making any significant changes to 
SRS delivery coding or payment rates. To date, we have received no 
report from participating professional societies as to the outcome of 
such deliberations.
    In response to comments for CY 2006 regarding the mature technology 
and stable median costs associated with Cobalt 60-based SRS treatment 
delivery described by G0243, we reassigned G0243 from a New Technology 
APC to new clinical APC 0127 (Stereotactic Radiosurgery) with a payment 
rate of $7,305 established based on the CY 2004 median cost of G0243. 
We made no changes for CY 2006 to the New Technology APC assignments of 
the other four SRS treatment codes, specifically, G0173, G0251, G0339, 
and G0340.
    Since we first established the full group of SRS treatment delivery 
codes in CY 2004, we now have 2 years of hospital claims data 
reflecting the costs of each of these services. Based on analysis of 
our claims data from CY 2004 and CY 2005, the median costs for linear 
accelerator-based SRS treatment delivery procedures as described by 
HCPCS codes G0173, G0251, G0339, and G0340 have been stable and 
generally lower than our New Technology APC payment rates in effect 
from CY 2004 through CY 2006. Specifically, the payment rate for HCPCS 
code G0173, a complete course of non-image guided, non-robotic linear 
accelerator-based SRS treatment, has been set at $5,250, yet our claims 
data indicate a median cost of $2,802 from CY 2004 claims and $3,665 
from CY 2005 claims, based upon hundreds of single claims from each 
year. For HCPCS code G0251, fractionated non-image guided, non-robotic 
linear accelerator-based SRS treatment, the corresponding median costs 
have been $1,028 and $1,386 based upon over 1,000 single claims from 
each year, and relatively consistent with the procedure's New 
Technology APC payment of $1,150. With respect to the complete course 
of therapy in one session or first fraction of image-guided, robotic 
linear accelerator-based SRS, described by HCPCS code G0339, its median 
costs have been $4,917 and $4,809 for CY 2004 and CY 2005 respectively, 
based upon over 500 single bills in each year, in comparison with the 
procedure's payment rate of $5,250 for those years. Lastly, the median 
costs of HCPCS code G0340, the second through fifth sessions of image-
guided, robotic linear accelerator-based SRS treatment, have been 
$2,502 for CY 2004 and $2,917 for CY 2005 as determined by over 1,000 
single bills during each year, significantly lower than its payment 
rate of $3,750. Unquestionably, the claims data from CY 2004 and CY 
2005 for linear accelerator-based SRS treatment delivery services 
reveal highly stable median costs from year to year based on 
significant claims volume.
    Based on the above findings, we believe that we have adequate 
claims data to assign the SRS treatment delivery procedures to 
clinically appropriate APCs, and we believe that such movement is 
appropriate. For CY 2007, we are proposing to create several new SRS 
clinical APCs of different levels to assign the HCPCS codes describing 
linear accelerator-based SRS treatment, G0173, G0251, G0339, and G0340, 
based on their clinical and hospital resource similarities and 
differences. In particular, we are proposing to assign HCPCS codes 
G0339 and G0173 to the same Level III SRS APC, because we believe these 
codes that describe the complete or first fraction of all types of 
linear accelerator-based SRS treatments have substantial hospital 
resource and clinical similarity, as observed in their median costs and 
recognized previously in their equivalent New Technology APC payments. 
The codes describing subsequent fractions of image-guided, robotic and 
non-image guided, non-robotic linear accelerator-based SRS treatments 
will each be assigned to their own clinical APCs, as they demonstrate 
significant differences in resource utilization as reflected in their 
median costs. Their previous assignments to different New Technology 
APCs anticipated these resource distinctions. We are proposing to 
continue our assignment of HCPCS code G0243 for Cobalt 60-based SRS 
treatment delivery to clinical APC 0127, renamed Level IV Stereotactic 
Radiosurgery. Our proposed reassignments of SRS services from New 
Technology APCs to clinical APCs are listed in Table 8 below.

                                   Table 8.--Proposed APC Reassignment for SRS Treatment Delivery Services for CY 2007
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                        CY 2006                                             Proposed CY
     HCPCS code           Short descriptor            CY 2006 SI         CY 2006 APC    payment       Proposed CY 2007 SI    Proposed CY     2007 APC
                                                                                          rate                                 2007 APC     median cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
G0173...............  Linear acc stereo        S                                1528    $5,250.00  S                                0067       $4,059.61
                       radsur com.
G0251...............  Linear acc based stereo  S                                1513     1,150.00  S                                0065        1,386.20
                       radio.
G0339...............  Robot lin-radsurg com,   S                                1528     5,250.00  S                                0067        4,059.61
                       first.
G0340...............  Robot lin-radsurg        S                                1525     3,750.00  S                                0066        2,916.68
                       fractx 2-5.
--------------------------------------------------------------------------------------------------------------------------------------------------------



[[Continued on page 49555]]


From the Federal Register Online via GPO Access [wais.access.gpo.gov]
]                         
 
[[pp. 49555-49604]] Medicare Program; Hospital Outpatient Prospective Payment System 
and CY 2007 Payment Rates; CY 2007 Update to the Ambulatory Surgical 
Center Covered Procedures List; Ambulatory Surgical Center Payment 
System and CY 2008 Payment Rates; Medicare Administrative Co[[Page 49555]]

[[Continued from page 49554]]

[[Page 49555]]

 d. Magnetoencephalography (MEG) Services
    Magnetoencephalography (MEG) is a non-invasive diagnostic tool that 
assists surgeons presurgery by measuring and mapping brain activity. It 
may be used for epilepsy and brain tumor patients. Since CY 2002, the 
MEG procedures described by CPT codes 95965 (Meg, spontaneous), 95966 
(Meg, evoked, single), and 95967 (Meg, evoked, each additional) have 
been assigned to New Technology APCs. In the July 25, 2005 proposed 
rule (70 FR 42709), we proposed to reassign MEG procedures to clinical 
APC 0430 using CY 2004 claims data to establish median costs on which 
the CY 2006 payment rates would be based. This proposal involved the 
reassignment of the three MEG procedures, specifically CPT codes 95965, 
95966, and 95967, from three separate New Technology APCs into one new 
clinical APC with a status indicator of ``T.'' Commenters to this 
proposal believed that their assignment to clinical APC 0430 would be 
inappropriate because the proposed payment level of $674 was inadequate 
to cover the costs of the procedures, and because the procedures should 
not be assigned to only one level as their required hospital resources 
differ significantly. They further stated that our data did not 
represent the true costs of the procedures because MEG procedures are 
performed on very few Medicare patients.
    Analysis of our hospital data for claims submitted from CY 2002 
through CY 2005 indicates that these procedures are rarely performed on 
Medicare beneficiaries. For claims submitted from CY 2002 through CY 
2005, our single claims data show that there were annually only between 
2 and 23 claims submitted for CPT code 95965, 3 and 7 claims for CPT 
code 95966, and only 1 for CPT code 95967. Additionally, the hospital 
claims median costs for these codes have varied widely, perhaps due to 
our small volume of claims. The median cost for CPT code 95965 has 
ranged from $332 using CY 2002 claims to $3,166 based upon CY 2005 
claims. The median cost for CPT code 95966 has varied widely from CY 
2002 to CY 2005. For single claims submitted during CY 2002, the median 
cost was $1,949, while it was $507 for CY 2003, $1,435 for CY 2004, and 
$701 from 3 single claims for CY 2005. The median cost for CPT code 
95967 based upon 1 single claim from CY 2005 claims is $217. We have no 
hospital median cost data for CPT code 95967 prior to CY 2005.
    In the November 10, 2005 final rule with comment period (70 FR 
68579), we stated that we carefully considered our claims data, 
information provided by the commenters, and the APC Panel 
recommendation for CY 2006 that we retain the MEG procedures in New 
Technology APCs. As a result of this analysis, we determined that using 
a 50/50 blend of the code specific median costs from our most recent CY 
2004 hospital claims data and the CY 2005 New Technology APC code-
specific payments amounts as the basis for assignment of the procedures 
for CY 2006 would be an appropriate way to recognize both the current 
payment rates for the procedures, which were originally based on the 
theoretical costs to hospitals of providing MEG services, and the 
median costs based upon our hospital claims data regarding actual MEG 
services provided to Medicare beneficiaries by hospitals. Therefore, 
CPT codes 95965, 95966, and 95967 were assigned to different New 
Technology APCs for CY 2006 based on this blended methodology, with 
payment rates of $2,750, $1,250, and $850 respectively.
    At the March 2006 APC Panel meeting, the Panel recommended that CMS 
move CPT codes 95965 (MEG, spontaneous), 95966 (MEG, evoked, single), 
and 95967 (MEG, evoked, each additional) from their CY 2006 New 
Technology APCs which were assigned based on the blended methodology 
described above to clinical APC(s) for CY 2007. Following that meeting, 
interested parties have provided us with CY 2005 charge and cost 
information from six hospitals that provided MEG services. These 
external data show wide variation in hospitals' costs and charges for 
MEG procedures, with generally higher values for CPT code 95965 and 
lower values for CPT codes 95966 and 95967 but no consistent 
proportionate relationship among those costs and charges. In some 
cases, the charges and costs for CPT codes 95966 and 95967 are quite 
similar for the two related services, one of which describes MEG for a 
single modality of evoked magnetic fields and the other that describes 
MEG for each additional modality of evoked magnetic fields. The 
individual hospital cost and charge data for specific services 
demonstrate significant variations of up to six fold across the 
hospitals, with an apparent inverse relationship between the numbers of 
services provided and the costs of the procedures. This finding is not 
unexpected, given the dependence of MEG procedures on the use of 
expensive capital equipment. As we have previously stated, our OPPS 
payment rates generally reflect the costs that are associated with 
providing care to Medicare beneficiaries in cost-efficient settings. 
For emerging technologies, we establish payment rates for new services 
that lack hospital claims data based on realistic utilization 
projections for all such services delivered in cost-efficient hospital 
outpatient settings. Given that we now have 4 years of hospital claims 
data for MEG procedures, because MEG is no longer a new technology, we 
do not believe these external data from 6 hospitals that performed MEG 
services in CY 2005 provide a better estimate of the hospital resources 
used in MEG procedures during the care of Medicare beneficiaries than 
our standard OPPS historical claims methodology.
    We agree with the APC Panel and are proposing to accept their 
recommendation to move the MEG CPT codes into clinical APCs for CY 
2007. While the volumes for the MEG procedures are low, almost all 
procedures, including those with very low Medicare volume, are assigned 
to clinical APCs under the OPPS, with their payment rates based on the 
median costs of their assigned APCs. Therefore, we are proposing to 
assign CPT code 95965 to new clinical APC 0038 (Spontaneous MEG) with a 
proposed median cost of $3,166.30 and to assign both CPT codes 95966 
and 95967 to APC 0209 (Level II MEG, Extended EEG Studies, and Sleep 
Studies) with a proposed median cost of $709.36. We believe that the 
assignment of CPT codes 95966 and 95967 to APC 0209 is appropriate 
because MEG studies are similar to EEGs and sleep studies in measuring 
activity of the brain over a significant time period, and our hospital 
claims data show that their hospital resources are also relatively 
comparable. MEG procedures and their CY 2007 proposed APC assignments 
are displayed in Table 9.

[[Page 49556]]



                                                    Table 9.--Proposed CY 2007 APC Assignment for MEG
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                        CY 2006                                             Proposed CY
     HCPCS Code           Short descriptor            CY 2006 SI         CY 2006 APC    payment       Proposed CY 2007 SI    Proposed CY     2007 APC
                                                                                          rate                                 2007 APC     median cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
95965...............  Meg, spontaneous.......  S.......................         1523    $2,750.00  S.......................         0038       $3,166.30
95966...............  Meg, evoked, single....  S.......................         1514     1,250.00  S.......................         0209          709.36
95967...............  Meg, evoked, each        S.......................         1510       850.00  S.......................         0209          709.36
                       additional.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As these procedures are performed on very few Medicare patients, we 
expect to continue to have small Medicare claims volumes for MEG 
services each year. However, we are confident that over time our claims 
data for these procedures will become more consistent and reflective of 
the full hospital resources used in MEG services, especially because 
only a small subset of hospitals provide MEG services. We have been 
told that hospitals performing MEG procedure recently have been paying 
increased attention to accurately reporting charges for all necessary 
hospital resources on their claims. We are optimistic that both 
increased public awareness of Medicare coding for these procedures and 
improved understanding of the standard OPPS methodology for 
establishing APC payment rates should result in improved claims data in 
the future that more accurately reflect the required hospital 
resources.
e. Other Services in New Technology APCs
    (If you choose to comment on issues in this section, please include 
the caption ``Other New Technology Services'' at the beginning of your 
comment.)
    Other than the PET, PET/CT, and SRS new technology services 
discussed above, there are 23 procedures currently assigned to New 
Technology APCs for which we believe we also have data adequate to 
support their assignment to clinical APCs. For CY 2007, we are 
proposing to reassign these procedures to clinically appropriate APCs, 
applying their CY 2005 claims data to develop their clinical APC median 
costs on which payments would be based. These procedures and their 
proposed APC assignments are displayed in Table10.

                          Table 10.--Proposed APC Reassignment of Other New Technology Procedures to Clinical APCs for CY 2007
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                        CY 2006                                             Proposed CY
     HCPCS Code           Short descriptor            CY 2006 SI         CY 2006 APC    payment       Proposed CY 2007 SI    Proposed CY     2007 APC
                                                                                          rate                                 2007 APC     median cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
0003T...............  Cervicography..........  S.......................         1492       $15.00  T.......................         0191           $9.22
0101T...............  Extracorp shockwv tx,hi  T.......................         1547       850.00  T.......................         0050        1,548.05
                       enrg.
0102T...............  Extracorp shockwv        T.......................         1547       850.00  T.......................         0050        1,548.05
                       tx,anesth.
0133T...............  Esophageal implant       T.......................         1556     1,750.00  T.......................         0422        1,704.85
                       injexn.
19296...............  Place po breast cath     S.......................         1524     3,250.00  T.......................         0030        2,533.62
                       for rad.
19297...............  Place breast cath for    S.......................         1523     2,750.00  T.......................         0029        1,822.38
                       rad.
20982...............  Ablate, bone tumor(s)    T.......................         1557     1,850.00  T.......................         0050        1,548.05
                       perq.
28890...............  High energy eswt,        T.......................         1547       850.00  T.......................         0050        1,548.05
                       plantar f.
36566...............  Insert tunneled cv cath  T.......................         1564     4,750.00  T.......................         0623        1,703.97
77421...............  Stereoscopic x-ray       S.......................         1502        75.00  S.......................         0257           88.39
                       guidance.
78804...............  Tumor imaging, whole     S.......................         1508       650.00  S.......................         0408          308.82
                       body.
79403...............  Hematopoietic nuclear    S.......................         1507       550.00  S.......................         0413          315.17
                       tx.
90473...............  Immune admin oral/nasal  S.......................         1491         5.00  S.......................         0436           10.71
90474...............  Immune admin oral/nasal  S.......................         1491         5.00  S.......................         0436           10.71
                       addl.
91035...............  G-esoph reflx tst w/     S.......................         1506       450.00  X.......................         0361          242.86
                       electrod.
C9716...............  Radiofrequency energy    S.......................         1519     1,750.00  T.......................         0150        1,818.31
                       to anu.
G0248...............  Demonstrate use home     S.......................         1503       150.00  V.......................         0604           49.45
                       inr mon.
G0249...............  Provide test             S.......................         1503       150.00  V.......................         0604           49.45
                       material,equipm.
G0293...............  Non-cov surg proc,clin   S.......................         1505       350.00  X.......................         0340           38.52
                       trial.
G0294...............  Non-cov proc, clinical   S.......................         1502        75.00  X.......................         0340           38.52
                       trial.
G0375...............  Smoke/tobacco            S.......................         1491         5.00  X.......................         0031           10.60
                       counseling 3-10.
G0376...............  Smoke/tobacco            S.......................         1491         5.00  X.......................         0031           10.60
                       counseling >10.
G3001...............  Admin + supply,          S.......................         1522     2,250.00  S.......................         0442        1,515.80
                       tositumomab.
--------------------------------------------------------------------------------------------------------------------------------------------------------

D. Proposed APC-Specific Policies

    1. Skin Replacement Surgery and Skin Substitutes (APCs 0024, 0025, 
0027)
    (If you choose to comment on issues in this section, please include 
the caption ``Skin Replacement Surgery and Skin Substitutes'' at the 
beginning of your comment.)
    For CY 2006, the American Medical Association (AMA) made 
comprehensive changes, including code additions, deletions, and 
revisions, accompanied by new and revised introductory language, 
parenthetical notes, subheadings and cross-references, to the 
Integumentary, Repair (Closure) subsection of surgery in the CPT book 
to facilitate more accurate reporting of skin grafts, skin 
replacements, skin substitutes, and local wound care. In particular, 
the section of the CPT book previously titled ``Free Skin Grafts'' and 
containing codes for skin replacement and skin substitute procedures 
was renamed, reorganized, and expanded. New and existing CPT codes 
related to skin replacement surgery and skin substitutes were organized 
into five subsections: Surgical Preparation, Autograft/Tissue Cultured 
Autograft, Acellular Dermal Replacement, Allograft/Tissue Cultured 
Allogeneic Skin Substitute, and Xenograft.

[[Page 49557]]

    As part of the CY 2006 CPT code update in the newly named ``Skin 
Replacement Surgery and Skin Substitutes'' section, certain codes were 
deleted that previously described skin allograft and tissue cultured 
and acellular skin substitute procedures, including CPT 15342 
(Application of bilaminate skin substitute/neodermis; 25 sq cm); CPT 
15343 (Application of bilaminate skin substitute/neodermis; each 
additional 25 sq cm); CPT 15350 (Application of allograft, skin; 100 sq 
cm or less), and CPT 15351 (Application of allograft, skin; each 
additional 100 sq cm). Thirty-seven new CPT codes were created in the 
``Skin Replacement Surgery and Skin Substitutes'' section, and these 
codes received interim final status indicators and APC assignments in 
the CY 2006 final rule with comment period and were subject to comment.
    At its March 2006 meeting, the APC Panel heard several 
presentations on some of the new CY 2006 CPT codes for skin replacement 
and skin substitute procedures, and CMS has received additional 
information from the public regarding a number of these services. In 
particular, 18 new CPT codes that were created to more specifically 
describe skin allograft, skin replacement, and skin substitute 
procedures were the subject of the APC Panel discussion and 
recommendations. These codes are as follows:
     CPT 15170 (Acellular dermal replacement, trunk, arms, 
legs; first 100 sq cm or less, or one percent of body area of infants 
and children)
     CPT 15171 (Acellular dermal replacement, trunk, arms, 
legs; each additional 100 sq cm, or each additional one percent of body 
area of infants and children, or part thereof)
     CPT 15175 (Acellular dermal replacement, face, scalp, 
eyelids, mouth, neck, ears, orbits, genitalia, hands, feet and/or 
multiple digits; first 100 sq cm or less, or one percent of body area 
of infants and children)
     CPT 15176 (Acellular dermal replacement, face, scalp, 
eyelids, mouth, neck, ears, orbits, genitalia, hands, feet and/or 
multiple digits; each additional 100 sq cm, or each additional one 
percent of body area of infants and children, or part thereof)
     CPT 15300 (Allograft skin for temporary wound closure, 
trunk, arms, legs; first 100 sq cm or less, or one percent of body area 
of infants and children)
     CPT 15301 (Allograft skin for temporary wound closure; 
trunk, arms, legs; each additional 100 sq cm, or each additional one 
percent of body area of infants and children, or part thereof)
     CPT 15320 (Allograft skin for temporary wound closure, 
face, scalp, eyelids, mouth, neck, ears, orbits, genitalia, hands, feet 
and/or multiple digits; first 100 sq cm or less, or one percent of body 
area of infants and children)
     CPT 15321 (Allograft skin for temporary wound closure, 
face, scalp, eyelids, mouth, neck, ears, orbits, genitalia, hands, feet 
and/or multiple digits; each additional 100 sq cm, or each additional 
one percent of body area of infants and children, or part thereof)
     CPT 15340 (Tissue cultured allogeneic skin substitute; 
first 25 sq cm or less)
     CPT 15341 (Tissue cultured allogeneic skin substitute; 
each additional 25 sq cm)
     CPT 15360 (Tissue cultured allogeneic dermal substitute; 
trunk, arms, legs; first 100 sq cm or less, or one percent of body area 
of infants and children)
     CPT 15361 (Tissue cultured allogeneic dermal substitute; 
trunk, arms, legs; each additional 100 sq cm, or each additional one 
percent of body area of infants and children, or part thereof)
     CPT 15365 (Tissue cultured allogeneic dermal substitute, 
face, scalp, eyelids, mouth, neck, ears, orbits, genitalia, hands, feet 
and/or multiple digits; first 100 sq cm or less, or one percent of body 
area of infants and children)
     CPT 15366 (Tissue cultured allogeneic dermal substitute, 
face, scalp, eyelids, mouth, neck, ears, orbits, genitalia, hands, feet 
and/or multiple digits; first 100 sq cm or less, or one percent of body 
area of infants and children)
     CPT 15420 (Xenograft skin (dermal), for temporary wound 
closure, face, scalp, eyelids, mouth, neck, ears, orbits, genitalia, 
hands, feet and/or multiple digits; first 100 sq cm or less, or one 
percent of body area of infants and children)
     CPT 15421 (Xenograft skin (dermal), for temporary wound 
closure, face, scalp, eyelids, mouth, neck, ears, orbits, genitalia, 
hands, feet and/or multiple digits; each additional 100 sq cm, or each 
additional one percent of body area of infants and children, or part 
thereof)
     CPT 15430 (Acellular xenograft implant; first 100 sq cm or 
less, or one percent of body area of infants and children)
     CPT 15431 (Acellular xenograft implant; each additional 
100 sq cm, or each additional one percent of body area of infants and 
children, or part thereof).
    The CY 2006 interim final APC assignments of these codes, the 
recommendations made by the APC Panel at its March 2006 meeting, and 
our proposed placement of the codes for CY 2007 are listed in Table 11 
below. Note that in general, biological skin substitutes and 
replacements used in procedures described by these CPT codes are 
proposed for separate payment under the OPPS for CY 2007, according to 
the methodology outlined in section V. of the preamble of this proposed 
rule.

           Table 11.--CY 2007 Proposed Assignments of Skin Substitute and Skin Replacement Procedures
----------------------------------------------------------------------------------------------------------------
                                        CY 2006 assignment                          CY 2007 proposed assignment
                                 -------------------------------     APC panel    ------------------------------
   CPT code     Short descriptor                         APC      recommendation                          APC
                                    APC        SI       median                       APC        SI       median
----------------------------------------------------------------------------------------------------------------
15170.........  Cell graft trunk/      24  T             $92.22                27       25  T            $314.58
                 arm/legs.
15171.........  Cell graft t/arm/      24  T              92.22                25       25  T             314.58
                 leg add-on.
15175.........  Acellular graft,       24  T              92.22                27       25  T             314.58
                 f/n/hf/g.
15176.........  Acell graft, f/n/      24  T              92.22                25       25  T             314.58
                 hf/g/add-on.
15300.........  Apply skin             27  T            1081.66               N/A       25  T             314.58
                 allograft, t/
                 arm/lg.
15301.........  Apply                  25  T             315.37               N/A       25  T             314.58
                 sknallograft t/
                 a/l addl.
15320.........  Apply skin             25  T             315.37                27       25  T             314.58
                 allogrft f/n/hf/
                 g.
15321.........  Apply                  25  T             315.37                25       25  T             314.58
                 sknallogrft f/n/
                 hfg add.
15340.........  Apply cult skin        24  T              92.22                27       25  T             314.58
                 substitute.
15341.........  Apply cult skin        24  T              92.22                25       25  T             314.58
                 sub add-on.
15360.........  Apply cult derm        24  T              92.22                27       25  T             314.58
                 sub, t/a/l.

[[Page 49558]]


15361.........  Aply cult derm         24  T              92.22                25       25  T             314.58
                 sub t/a/l/ add-
                 on.
15365.........  Apply cult derm        24  T              92.22                27       25  T             314.58
                 sub f/n/hf/g.
15366.........  Apply cult derm        24  T              92.22                25       25  T             314.58
                 f/hf/g add.
15420.........  Apply skin             25  T             315.37                27       25  T             314.58
                 xgraft, f/n/hf/
                 g.
15421.........  Apply skn              25  T             315.37                25       25  T             314.58
                 xgraft, f/n/hf/
                 g add.
15430.........  Apply acellular        25  T             315.37                27       25  T             314.58
                 xenograft.
15431.........  Apply acellular        25  T             315.37                25       25  T             314.58
                 xgraft add.
----------------------------------------------------------------------------------------------------------------

    We reviewed the presentations to the APC Panel; the APC Panel's 
recommendations; the CPT code descriptors, introductory explanations, 
cross-references, and parenthetical notes; the clinical characteristic 
of the procedures; and the code-specific median costs for all related 
CPT codes available from our CY 2005 claims data. While we agree with 
the APC Panel that the codes currently placed in APC 0024 (Level I Skin 
Repair) should be assigned to an APC with a higher median cost for CY 
2007, we disagree that these procedures should be placed in APC 0027 
(Level IV Skin Repair). APC Panel presenters reasoned that some of the 
codes (CPTs 15170, 15175, 15320, 15340, 15360, 15365, 15420, and 15430) 
for the first increment of body surface area treated should be placed 
in APC 0027 because they are similar to CPT code 15300 (Allograft skin 
for temporary wound closure, trunk, arms, legs; first 100 sq cm or 
less, or one percent of body area of infants and children). Upon 
further review of the clinical and expected hospital resource 
characteristics of CPT code 15300, we believe that this procedure is 
not appropriately placed in APC 0027. Split-thickness and full 
thickness skin autograft procedures currently assigned to APC 0027 are 
likely to require greater hospital resources, including additional 
operating room time and special equipment, in comparison to application 
of a separately paid allograft skin product. Instead, for CY 2007 we 
are proposing to reassign CPT code 15300 to APC 0025 (Level II Skin 
Repair), with an APC median cost of $314.58. We agree, in principle, 
that other CPT codes for the first increment of body surface area 
treated with a skin replacement or skin substitute are similar 
clinically and from a hospital resource perspective to CPT code 15300 
and are, therefore, proposing to assign these procedures to APC 0025 as 
well for CY 2007.
    Similarly, presenters reasoned that the related add-on codes (CPTs 
15171, 15176, 15321, 15342, 15361, 15366, 15421, and 15431) for 
procedures to treat additional body surface areas are similar to CPT 
code 15301 (Allograft skin for temporary wound closure, trunk, arms, 
legs; each additional 100 sq cm, or each additional one percent of body 
area of infants and children, or part thereof) in terms of required 
hospital resources. CPT code 15301 is assigned to APC 0025 for CY 2006. 
We are proposing to maintain the assignment of CPT code 15301 to APC 
0025 for CY 2007 and to reassign the other add-on codes to this APC. 
Note that APC 0025 has a status indicator of ``T,'' so that the add-on 
codes will experience the standard OPPS multiple surgical procedure 
reduction when properly billed with the first body surface area 
treatment codes that are assigned to the same clinical APC. We believe 
that this reduction in payment for the procedural resources associated 
with the add-on services is appropriate.
2. Treatment of Fracture/Dislocation (APC 0046)
    (If you choose to comment on issues in this section, please include 
the caption ``Treatment of Fracture/Dislocation'' at the beginning of 
your comment.)
    APC 0046 is a large clinical APC to which many procedures related 
to the percutaneous or open treatment of fractures and dislocations are 
assigned for CY 2006. Most of the approximately 100 procedures in the 
APC are relatively low volume, with even fewer single bills available 
for ratesetting. The median costs of the significant procedures in this 
APC as configured for CY 2006 range from a low of about $1,415 to a 
high of about $3,893. We received comments to the CY 2006 proposed rule 
(70 FR 42674) requesting that we distinguish procedures containing 
``with or without external fixation'' in their descriptors to provide 
greater payments when external fixation is used to treat fractures. The 
commenters explained that when external fixation devices are used, the 
costs of the procedures increase, and, therefore, the current APC 
placement significantly underpays those procedures in those instances. 
In the CY 2006 final rule with comment period (70 FR 68607), we 
declined to reassign procedures that could include external fixation at 
that time but we acknowledged that we had treated APC 0046 as an 
exception to the 2 times rule for several years. For CY 2006, we again 
treated APC 0046 as an exception to the 2 times rule, but noted we 
would ask the APC Panel to consider whether this APC could be 
reconfigured to improve its clinical and resource homogeneity.
    At the March 2006 meeting of the APC Panel, we asked the Panel to 
consider a possible reconfiguration of APC 0046 based on partial year 
CY 2005 claims data. The reconfiguration would create three new APCs 
and would divide the codes in APC 0046 among them. The APC Panel 
recommended that CMS continue to evaluate the refinement of APC 0046 
(Open/Percutaneous Treatment Fracture or Dislocation) into at least 
three APC levels, with consideration of a fourth level should data 
support this additional level. We are accepting the APC Panel's 
recommendation and are proposing for CY 2007 to split APC 0046 into 
three new APCs: APC 0062 (Level I Treatment Fracture/Dislocation); APC 
0063 (Level II Treatment Fracture/Dislocation); and APC 0064 (Level III 
Treatment Fracture/Dislocation). To ensure clinical and resource 
homogeneity in the new APCs, their proposed configurations are based on 
the procedure code descriptors, clinical considerations specific to 
each procedure, and service-specific hospital resource utilization as 
shown in the claims data from CY 2005. Restructuring APC 0046 into 
these three new APCs eliminates 2 times rule violations in the 
Fracture/Dislocation series.

[[Page 49559]]

    We are not currently proposing a fourth APC level in the Fracture/
Dislocation series because we do not believe our claims data are 
sufficiently robust and consistent from year to year to support 
differential payment for another service level. One code, CPT 27615 
(Radical resection of tumor (e.g., malignant neoplasm), soft tissue of 
leg or ankle area), is not clinically coherent with the other 
procedures in APC 0046, and we are proposing to reassign this procedure 
outside of the Fracture/Dislocation series to APC 0050 (Level II 
Musculoskeletal Procedures Except Hand and Foot) for CY 2007.

BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP23AU06.016


[[Page 49560]]


[GRAPHIC] [TIFF OMITTED] TP23AU06.017


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[GRAPHIC] [TIFF OMITTED] TP23AU06.018

BILLING CODE 4120-01-C
3. Electrophysiologic Recording/Mapping (APC 0087)
    (If you choose to comment on issues in this section, please include 
the caption ``Electrophysiologic Recording/Mapping'' at the beginning 
of your comment.)
    At its March 2006 meeting, the APC Panel heard testimony from a 
presenter who asked that the Panel recommend that CPT codes 93609 
(intraventricular and/or intra-atrial mapping of tachycardia, add-on), 
93613 (intracardiac electrophysiologic 3-D mapping), and 93631 (intra-
operative epicardial & endocardial pacing and mapping to localize zone 
of slow conduction for surgical correction) be removed from APC 0087. 
The presenter asked the APC Panel to recommend that these codes be 
placed in APC 0086 for improved clinical and resource alignment. The 
presenter indicated that the median costs for these CPT codes were more 
than two times the median cost of the least costly HCPCS code in APC 
0087 and, therefore, constituted a 2 times violation. The presenter 
also indicated that the median cost of APC 0087 had declined in recent 
years, and argued that the payment rate for APC 0087 was too low to 
adequately compensate providers for these services.
    The APC Panel did not recommend that CMS move these codes from APC 
0087 to APC 0086, but instead recommended that CMS maintain the three 
codes in APC 0087 for CY 2007. The APC Panel noted that, due to the low 
volume of these and other services assigned to APC 0087, under the CMS' 
rules there was no 2 times violation in APC 0087. Moreover, the APC 
Panel found that the services under discussion were cardiac 
electrophysiologic mapping services, like other procedures also 
assigned to APC 0087, and were, therefore, clinically coherent with 
other services in APC 0087. The APC Panel did not believe that these 
three cardiac electrophysiologic mapping procedures were similar 
clinically or from a resource perspective to the intracardiac catheter 
ablation procedures residing in APC 0086. We agree with the APC Panel's 
assessment and are accepting this APC Panel recommendation. Therefore, 
we are proposing that CPT codes 93609, 93613, and 93631 remain assigned 
to APC 0087 for CY 2007.
4. Insertion of Mesh or Other Prosthesis (APC 0154)
    (If you choose to comment on issues in this section, please include 
the caption ``Insertion of Mesh or Other Prosthesis'' at the beginning 
of your comment.)
    During the March 2006 APC Panel meeting, a presenter requested that 
we

[[Page 49562]]

reassign CPT code 57267 (Insertion of mesh or other prosthesis for 
repair of pelvic floor defect, each site (anterior, posterior 
compartment), vaginal approach) to a more clinically and resource-
appropriate APC than its CY 2006 assignment to APC 0154 (Hernia/
Hydrocele Procedures). The presenter expressed concern that the 
procedure is currently assigned to an APC with a ``T'' status indicator 
and stated that payment would be more accurate if it were assigned to 
an APC that has an ``S'' status indicator. The mesh insertion procedure 
is a CPT add-on code and is, by definition, performed at the same time 
as certain other procedures and will, therefore, be discounted every 
time it is performed. The presenter objected to our assignment of CPT 
code 57267 to an APC that is subject to the multiple procedure discount 
because it is always a secondary procedure, and the discounted payment 
amount is not adequate to pay even for the cost of the implantable 
mesh. The presenter also believed that its assignment to an APC where 
hernia and hydrocele procedures were also assigned was clinically 
inappropriate.
    The APC Panel recommended that CMS reassign CPT code 57267 to a 
more clinically and resource-appropriate APC.
    In the CY 2005 claims data, the median cost for CPT code 57267 is 
$529.14, the lowest by far for procedures in APC 0154, which has an APC 
median cost of $1,821 for CY 2007. However, the median cost of CPT code 
57267 is based on only 6 single claims of the total 1,038 submitted for 
the service. Because the procedure always is performed in addition to 
other related procedures, we expect that claims for this service will 
be multiple claims. Therefore, we are not confident that the 
procedure's median cost based upon the six single claims is accurate.
    Therefore, in order to obtain more information about the cost of 
the procedure, we performed additional analyses of CY 2005 claims data 
in an attempt to specifically explore the cost of the mesh implant 
packaged into the payment for CPT code 57267. We believe that a 
significant portion of the procedural cost should be related to the 
cost of the mesh, based on information presented at the March 2006 APC 
Panel meeting. We looked at all claims that included charges for the 
HCPCS code for implantable mesh (C1781) and either CPT code 57267 or 
49568 (Implantation of mesh or other prosthesis for incisional or 
ventral hernia repair). We examined the bills for CPT code 49568 in 
addition to those for CPT code 57267 because it is a high volume 
procedure that also uses implantable mesh, and we expected that the 
extra volume would improve our chances of identifying meaningful charge 
data.
    We found 210 claims with charges reported for both CPT code 57267 
and HCPCS code C1781 on the same day and 6,345 claims with reported 
charges for both CPT code 49568 and HCPCS code C1781 on the same day. 
Costs developed from these two claims subsets included the cost of the 
implanted mesh device that was used in performing the procedure. Table 
13 below displays the median costs from those claims. The costs shown 
in the column titled ``Line-item Median Cost'' are those we obtained by 
looking at all CY 2005 OPPS claims on which charges for both the 
procedure code (either CPT code 57267 or 49568) and the code for the 
implantable mesh (HCPCS code C1781) were reported. The costs shown in 
the column titled ``Single Claims Median Cost'' are the median costs 
calculated using only single procedure claims for the specific 
procedure that also included the C-code for the mesh.
    Our additional data analysis supports the APC Panel presenter's 
assertion that the cost of the mesh is greater than 50 percent of the 
total cost of CPT code 57267, but it also indicates that the mesh cost 
is far less than 50 percent of the payment amount for APC 0154. In CY 
2006 the payment rate for APC 0154 is $1,704.59, and the payment when 
the multiple procedure discount is taken is $852.30, which is much 
greater than both the line-item median cost of the mesh and the median 
single claims cost of CPT code 57267 (which explicitly includes the 
implantable mesh) reflected in our claims data.

                      Table 13.--Median Costs of HCPCS Code C1781 and Associated Procedures
----------------------------------------------------------------------------------------------------------------
                                                                                                    CY 2006 APC
                                                                     Line-item     Single claims   0154 payment
              HCPCS code                    Short descriptor        median cost     median cost      amount (T
                                                                                                      status)
----------------------------------------------------------------------------------------------------------------
57267.................................  Insert mesh/pelvic flr           $423.28         $529.14       $1,704.59
                                         add-on.
C1781 (billed with 57267).............  Mesh (implantable)......          383.35             N/A             N/A
49568.................................  Hernia repair w/mesh....          363.41        1,323.29        1,704.59
C1781 (billed with 49568).............  Mesh (implantable)......          242.20             N/A             N/A
----------------------------------------------------------------------------------------------------------------

    We agree with the APC Panel that the procedure should be assigned 
to a more clinically appropriate APC, and therefore, we are proposing 
to accept its recommendation and reassign CPT code 57267 to APC 0195 
(Level IX Female Reproductive Procedures), with status indicator ``T'' 
for CY 2007. The proposed median cost of APC 0195 is $1,777 for CY 
2007, very comparable to the CY 2006 median cost of APC 0154, where CPT 
code 57267 is currently assigned. The median cost for the procedure 
remains very low in comparison with other procedures assigned to APC 
0195, so that payment for the service when the multiple procedure 
reduction is applied should be appropriate. While not affecting the 
procedure's payment significantly, this reassignment improves the 
clinical homogeneity of APCs 0154 and 0195.
5. Percutaneous Renal Cryoablation (APC 0163)
    (If you choose to comment on issues in this section, please include 
the caption ``Percutaneous Renal Cryoablation'' at the beginning of 
your comment.)
    During the March 2006 APC Panel meeting, a presenter requested that 
we reassign CPT code 0135T (Ablation renal tumor(s), unilateral, 
percutaneous, cryotherapy) to APC 0423 (Level II Percutaneous Abdominal 
and Biliary Procedures). The presenter provided information about the 
costs of performing these procedures and compared the resource 
requirements for the procedures to those for CPT code 47382 (Ablation, 
one or more liver tumor(s), percutaneous, radiofrequency), which is 
currently assigned to APC 0423. The presenter proposed reassignment of 
CPT code 0135T to APC 0423 because that is where CPT code 47382 is 
assigned, and stated that the costs of the two procedures are very 
similar.

[[Page 49563]]

    The APC Panel recommended that we assign CPT code 0135T to APC 0423 
for CY 2007.
    CPT code 0135T is new for CY 2006 and therefore, we have no claims 
data on which to base our APC assignment decision. The procedure 
currently has an interim assignment to APC 0163 (Level IV 
Cystourethroscopy and Other Genitourinary Procedures), with a CY 2006 
payment amount of $1,999.35.
    We are proposing to accept the APC Panel's recommendation to 
reassign CPT code 0135T to APC 0423 for CY 2007. We believe that 
assignment of CPT code 0135T to APC 0423 is clinically appropriate, and 
that the CY 2007 median cost of APC 0423 of $2,410 is reasonably close 
to our expectations regarding the resource requirements for the renal 
cryoablation procedure.
6. Keratoprosthesis (APC 0244)
    (If you choose to comment on issues in this section, please include 
the caption ``Keratophrosthesis'' at the beginning of your comment.)
    CPT code 65770 is a surgical procedure for implantation of a 
keratoprosthesis, an artificial cornea. The keratoprosthesis device 
that is required for the implantation is described by HCPCS code C1818 
(Integrated keratoprosthesis), a device category that received 
transitional pass-through payment under the OPPS from July 2003 through 
December 2005. When the device came off pass-through status for CY 2006 
and its costs were packaged into the implantation procedure, CPT code 
65770 continued to be assigned to APC 0244 (Corneal Transplant), with a 
payment rate of about $2,275, despite an increase in the median cost of 
the implantation procedure of about $1,200 associated with the 
packaging of the device. There is no 2 times violation in APC 0244 for 
CY 2006.
    At the March 2006 meeting of the APC Panel, following a 
presentation regarding the procedure to implant a keratoprosthesis that 
described the clinical and hospital resource characteristics of CPT 
code 65770, the Panel recommended moving CPT code 65770 to a more 
appropriate APC in order to make appropriate payment. We agree with the 
recommendation of the APC Panel. Claims data from CY 2005 demonstrate 
that the median cost for implantation of a keratoprosthesis of 
$3,127.51 remains significantly higher than the median costs of other 
procedures assigned to APC 0244, although there is no 2 times 
violation. In addition, CPT code 65770 contributes less than 1 percent 
of the single claims in the APC available for ratesetting, and it is 
likely to continue to be an uncommon procedure among Medicare 
beneficiaries, resulting in its persistent small contribution to the 
median cost of APC 0244. Therefore, for CY 2007 we are proposing to 
create a new APC 0293 (Level V Anterior Segment Eye Procedures) with a 
median cost of $3,127.51 and to move CPT code 65770 into that APC in 
order to more appropriately pay for the procedure and the related 
device.
7. Medication Therapy Management Services
    (If you choose to comment on issues in this section, please include 
the caption ``Medication Therapy Management Services'' at the beginning 
of your comment.)
    Following a presentation at its March 2006 meeting, the APC Panel 
made two recommendations regarding Category III CPT codes for 
pharmacist medication therapy management services that were new for CY 
2006. These services include CPT codes 0115T (medication therapy 
management services provided by a pharmacist, individual, face-to-face 
with patient, initial 15 min., w/assessment and intervention if 
provided; initial encounter), 0116T (medication therapy management; 
subsequent encounter), and 0117T (medication therapy management; 
additional 15 min.). These codes were assigned status indicator ``B'' 
in the CY 2006 OPPS final rule with comment period, indicating that 
they are not recognized by the OPPS when submitted on an outpatient 
hospital Part B bill type, with comment indicator ``NI'' to identify 
them as subject to comment. The APC Panel recommended that we create a 
new APC, with a nominal payment, to which we would assign these codes; 
implement the assignment in July 2006, if possible, or otherwise in CY 
2007; and provide guidance to hospitals on how and when these codes 
should be reported. We are not accepting the APC Panel's 
recommendations. Rather, we are proposing to continue to assign status 
indicator ``B'' to CPT codes 0115T, 0116T, and 0117T for CY 2007.
    According to the AMA, the purpose of Category III CPT codes is to 
facilitate data collection on and assessment of new services and 
procedures. Medication therapy management services are not new services 
in the OPPS, as they have been provided to patients by hospitals in the 
past as components of a wide variety of services provided by hospitals, 
including clinic and emergency room visits, procedures, and diagnostic 
tests. As such, we believe their associated hospital resource costs are 
already incorporated into the OPPS payments for these other services 
that are based on historical hospital claims data. The three Category 
III CPT codes specifically describe medication therapy management 
services provided by a pharmacist. We have no need to distinguish 
medication therapy management services provided by a pharmacist in a 
hospital from medication therapy management services provided by other 
hospital staff, as the OPPS only makes payments for services provided 
incident to physicians' services. Hospitals providing medication 
therapy management services incident to physicians' services may choose 
a variety of staffing configurations to provide those services, taking 
into account other relevant factors such as State and local laws and 
hospital policies.
    In general, we do not establish new clinical APCs for new codes and 
set payment rates for those APCs when we have no cost data for any 
services populating the APCs. New codes where we believe that there are 
no existing clinical APCs compatible with their expected clinical and 
hospital resource characteristics are often assigned to New Technology 
APCs until we have sufficient cost data to determine appropriate 
clinical APC assignments. However, these medication therapy management 
codes would not be eligible to map to New Technology APCs because they 
are not new services which are unrepresented in historical hospital 
claims data. As stated earlier, because we believe the costs of 
medication therapy management services are imbedded as a component 
within our claims data, we are confident that our claims data reflect 
the costs of pharmacist medication management services provided to 
hospital outpatients who are receiving hospital services.
8. Complex Interstitial Radiation Source Application (APC 0651)
    (If you choose to comment on issues in this section, please include 
the caption ``Complex Interstitial Radiation Source Application'' at 
the beginning of your comment.)
    APC 0651 (Complex Interstitial Radiation Source Application), 
contains only one code, CPT code 77778 (Complex interstitial 
application of brachytherapy sources). The coding, APC assignment, 
median cost, and resulting payment rate for CPT code 77778 have not 
been stable since the inception of the OPPS, and that instability has 
been a source of concern to hospitals that furnish the service and to 
specialty societies. The vast majority

[[Page 49564]]

of claims for interstitial brachytherapy are for the treatment of 
patients with a diagnosis of prostate cancer. The historical coding, 
APC assignments, and payment rates for CPT code 77778 and the related 
service CPT code 55859 (Transperitoneal placement of needles or 
catheters into the prostate for application of brachytherapy sources), 
are shown in Table 14.

                            Table 14.--Historical Payment Rates for Complex Interstitial Application of Brachytherapy Sources
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               CPT code                           CPT code
              OPPS CY                    Combination APC        77778         APC for 77778        55859         APC for 55859             Source
--------------------------------------------------------------------------------------------------------------------------------------------------------
2000...............................  N/A...................      $198.31  APC 312.............      $848.04  APC 162.............  Pass-through.
2001...............................  N/A...................      205.495  APC 312.............       878.72  APC 162.............  Pass-through.
2002...............................  N/A...................      6344.67  APC 312.............      2068.23  APC 163.............  Pass-through with pro
                                                                                                                                    rata reduction.
2003 (if prostate brachytherapy      G0261, APC 648,                 N/A  N/A.................          N/A  N/A.................  Packaged.
 with iodine sources).                $5154.34.
2003 (if prostate brachytherapy      G0256, APC 649,                 N/A  N/A.................          N/A  N/A.................  Packaged.
 with palladium sources).             $5998.24.
2003 (if not prostate                N/A...................      2853.58  APC 651.............      1479.60  APC 163.............  Separate payment
 brachytherapy, not including                                                                                                       based on scaled
 sources).                                                                                                                          median cost per
                                                                                                                                    source.
2004...............................  N/A...................       558.24  APC 651.............      1848.55  APC 163.............  Cost.
2005...............................  N/A...................      1248.93  APC 651.............      2055.63  APC 163.............  Cost.
2006...............................  N/A...................       666.21  APC 651.............      1993.35  APC 163.............  Cost.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We have frequently been told by the public that the instability in 
our payment rates for APC 0651 creates difficulty in planning and 
budgeting for hospitals. Moreover, we have been told that in this case 
reliance on single procedure claims results in use of only incorrectly 
coded claims for prostate brachytherapy because, for application to the 
prostate, which is estimated to be 85 percent of all occurrences of CPT 
code 77778, a correctly coded claim is a multiple procedure claim. 
Specifically, we are told that a correctly coded claim for prostate 
brachytherapy should include, for the same date of service, both CPT 
codes 55859 and 77778, brachytherapy sources reported with C-codes, and 
typically separately coded imaging and radiation therapy planning 
services. We are further advised that in the cases of complex 
interstitial brachytherapy where sources are placed in sites other than 
the prostate, the charges for both placing the needles or catheters and 
for applying the sources may be reported by CPT code 77778 alone 
because there are no other specific CPT codes for placement of needles 
or catheters in those sites. In other cases, the placement of needles 
or catheters may be reported with not otherwise classified codes 
specific to the treated body area.
    At the March 2006 APC Panel meeting, presenters urged the Panel to 
recommend that CMS use only single procedure claims that contain 
charges for brachytherapy sources on the same claim with CPT code 77778 
to set the median cost for APC 0651. Presenters also urged that CMS 
adopt a process for using multiple procedure claims to set the median 
for APC 0651 that would sum the costs on multiple procedure claims 
containing CPT codes 77778 and 55859 (and no other separately payable 
services not on the bypass list) and, excluding the costs of sources, 
split the resulting aggregate median cost on the multiple procedure 
claim according to a preestablished attribution ratio between CPT codes 
77778 and 55859. Presenters also urged that we provide hospital 
education on correct coding of brachytherapy services and devices of 
brachytherapy required to perform brachytherapy procedures. They 
indicated that any claim for a brachytherapy service that did not also 
report a brachytherapy source should be considered to be incorrectly 
coded and thus not reflective of the hospital resources required for 
the interstitial source application procedure. They believed that these 
claims should be excluded from use in establishing the median cost for 
APC 0651. They believed that hospitals which report the brachytherapy 
sources on their claims are more likely to report complete charges for 
the associated brachytherapy procedure than hospitals that do not 
report the separately payable brachytherapy sources.
    The APC Panel recommended that CMS reevaluate the proposed payment 
for brachytherapy services in APC 0651 for CY 2007. The APC Panel also 
recommended that CMS formally work with the Coalition for the 
Advancement of Brachytherapy, American Brachytherapy Society, and the 
American Society for Therapeutic Radiology and Oncology to evaluate the 
methodology for setting brachytherapy service payment rates in APC 
0651.
    In response to the APC Panel recommendations, we are explicitly 
analyzing the standard OPPS methodology that we used in determining our 
proposed payment rate for APC 0651 in this proposed rule in the context 
of alternative multiple bill methodologies. In addition, we note that 
we routinely accept requests from interested organizations to discuss 
their views about OPPS payment policy issues.
    The organizations that the APC Panel asked us to work with have 
frequently brought their concerns to our attention through the 
rulemaking process and otherwise. We will consider the input of any 
individual or organization to the extent allowed by Federal law 
including the Administrative Procedure Act (APA) and the Federal 
Advisory Committee Act (FACA). We establish the OPPS rates through 
regulations. We are required to consider the timely comments of 
interested organizations, establish the payment policies for the 
forthcoming year, and respond to the timely comments of all public 
commenters in the final rule in which we establish the payments for the 
forthcoming year.
    For this proposed rule, we developed a median cost for APC 0651 
using single procedure claims using the general OPPS process, but we 
also looked at multiple procedure claims that contain the most common 
combinations of codes used with APC 0651. Our single procedure claims 
process results in using 1,123 claims to calculate a median cost of 
$1028.93 for APC 0651. We have added CPT code 76965, a CPT code for 
ultrasound guidance that commonly appears on claims for complex

[[Page 49565]]

interstitial brachytherapy, to the bypass list for CY 2007 after close 
clinical review because we believe that it would typically have little 
associated packaging. We believe that this change, along with 
maintenance of CPT code 77290 for complex therapeutic radiology 
simulation-aided field setting on the bypass list, is responsible for 
the growth in single procedure claims from the 381 single bills on 
which the APC 0651 median cost was calculated for the CY 2006 OPPS 
final rule with comment period. However, only 6 of these 1,123 single 
and ``pseudo'' single claims also included brachytherapy sources used 
in complex interstitial brachytherapy source application, and the 
median cost for these 6 claims at $600.68 is significantly less than 
the median cost for all single claims. It is unclear why so many of 
these claims do not contain brachytherapy sources, which were 
separately paid at cost in CY 2005. Because we are proposing to pay 
separately for brachytherapy sources again for CY 2007, we see no 
reason to believe that these few claims for brachytherapy services that 
included sources, which also do not report CPT code 55859 for placement 
of needles or catheters into the prostate, are more correctly coded 
than those claims which do not separately report brachytherapy sources. 
We believe it is possible that hospitals billing CPT code 77778 and not 
the associated brachytherapy sources may have bundled their charges for 
the brachytherapy sources into their charge for CPT code 77778.
    We also identified multiple procedure claims that contained both 
CPT codes 77778 and 55859 and also included any one or more of the 
following procedure codes, which have repeatedly appeared as common 
procedures that are reported on the same claim with CPT codes 55859 and 
77778: 76000, 76965, or 77290. We then calculated median costs for 
interstitial prostate brachytherapy in two different ways: (1) 
Bypassing the line item charges for these three ancillary codes; and 
(2) packaging the costs of these three ancillary codes. We applied this 
methodology both (1) to all claims that met these criteria with and 
without sources and (2) to claims that met the criteria and also 
separately reported brachytherapy sources that would be expected to be 
reported with CPT code 77778. See Tables 15 and 16 below for the 
results of this investigation.
    We found 10,571 multiple procedure claims with CPT codes 55859 and 
77778 reported on the claim, including those both with and without 
separately reported sources. We found that 7,181 of the 10,571 claims 
contained any combination of the 3 ancillary codes (76000, 76965, or 
77290). Table 15 shows the results of bypassing and packaging the line-
item costs of the 3 ancillary procedures.

                    Table 15.--Multiple Procedure Claims Including CPT Codes 55859 and 77778
----------------------------------------------------------------------------------------------------------------
                                                                Minimum      Maximum
                                                  Frequency       cost         cost      Mean cost   Median cost
----------------------------------------------------------------------------------------------------------------
Ancillary Codes Packaged.......................       * 7180      $828.46   $11,202.81    $3,326.50    $3,062.99
Ancillary Codes Bypassed.......................         7181       811.95    11,203.81     3,300.16    3,030.01
----------------------------------------------------------------------------------------------------------------
* 1 lost to trimming.

    We found 9,791 multiple procedure claims with CPT codes 55859 and 
77778 reported on the claim that also included brachytherapy sources 
that would be used with CPT code 77778. We found that 6,748 of the 
9,791 claims contained any combination of the 3 ancillary codes. Table 
16 shows the results of bypassing and packaging the line-item costs of 
the 3 ancillary procedures.

 Table 16.--Multiple Procedure Claims Including CPT Codes 55859 and 77778 and One or More Brachytherapy Sources
----------------------------------------------------------------------------------------------------------------
                                                                Minimum      Maximum
                                                  Frequency       cost         cost      Mean cost   Median cost
----------------------------------------------------------------------------------------------------------------
Ancillary Codes Packaged.......................         6748      $890.56   $10,224.17    $3,240.13    $3,026.62
Ancillary Codes Bypassed.......................         6748       912.81    10,307.37     3,215.75     2,992.60
----------------------------------------------------------------------------------------------------------------

    The claims containing CPT codes 55859 and 77778 and any combination 
of the three identified ancillary codes have mean and median costs that 
are very close to one another, regardless of whether the hospital 
billed separately for the brachytherapy sources on the claim with the 
procedure codes. Moreover, most of the multiple procedure claims we 
identified contained sources. This leads us to conclude that the 
presence of sources on the claim does not make a significant difference 
in the median cost of the combined service.
    Moreover, when we calculate the total median cost from single bills 
for the APCs for the two major procedures codes without regard to the 
separate payments that would be made for CPT codes 76000, 76965, and 
77290, the sum of the CY 2007 proposed medians for APC 0651 and APC 
0163 is $3,197.07, which is greater than the combination medians, even 
when the three ancillary services are packaged into the combination 
median. Under our proposed policies for CY 2007, hospitals would also 
be paid separately for brachytherapy sources, guidance services, and 
radiation therapy planning services that may be provided in support of 
services reported with CPT codes 55859 and 77778.
    Therefore, we believe that the summed median cost for APC 0651 and 
APC 0163 results in an appropriate level of full payment for the 
dominant type of service provided under APC 0651, interstitial prostate 
brachytherapy. We are proposing to use the median cost of $1,028.93, as 
derived from all single bills for APC 0651 according to our standard 
OPPS methodology, to establish the median for that APC.
    We recognize that prostate brachytherapy is not the sole use of CPT 
code 77778, although it is the predominant use. Costs attributable to 
the placement of needles and catheters and to the interstitial 
application of brachytherapy sources to sites other than the prostate 
may also be reported on claims whose data map to APC 0651.

[[Page 49566]]

This clinically driven variability in the claims data is difficult to 
assess without adding additional levels of complexity to the issue by 
considering diagnoses in establishing payments rates. However, 
recognizing that a PPS is a system based on averages and, to the extent 
that claims for all types of complex interstitial brachytherapy source 
application are included in the body of claims used to set the median 
cost for APC 0651, we believe that the payment for these services is 
appropriate.
9. Single Allergy Tests (APC 0381)
    (If you choose to comment on issues in this section, please include 
the caption ``Allergy Testing'' at the beginning of your comment.)
    We are proposing to continue with our methodology of 
differentiating single allergy tests (``per test'') from multiple 
allergy tests (``per visit'') by assigning these services to two 
different APCs to provide accurate payments for these tests in CY 2007. 
Multiple allergy tests are assigned to APC 0370, with a median cost 
calculated based on the standard OPPS methodology. We provided billing 
guidance in CY 2006 in Transmittal 804 (issued on January 3, 2006) 
specifically clarifying that hospitals should report charges for the 
CPT codes that describe single allergy tests to reflect charges ``per 
test'' rather than ``per visit'' and should bill the appropriate number 
of units of these CPT codes to describe all of the tests provided. 
However, our CY 2005 claims data available for the CY 2007 proposed 
rule do not yet reflect the improved and more consistent hospital 
billing practices of ``per test'' ``for single allergy tests. Some 
claims for single allergy tests still appear to provide charges that 
represent a ``per visit'' charge, rather than a ``per test'' charge. 
Therefore, consistent with our payment policy for CY 2006, we are 
proposing to calculate a ``per unit'' median cost for APC 0381, based 
upon 349 claims containing multiple units or multiple occurrences of a 
single CPT code, where packaging on the claims is allocated equally to 
each unit of the CPT code. Using this methodology, we are proposing a 
median cost of $13.29 for APC 0381 for CY 2007. We are hopeful that the 
better and more accurate hospital reporting and charging practices for 
these single allergy test CPT codes beginning in CY 2006 will allow us 
to calculate the median cost of APC 0381 using the standard OPPS 
process in future OPPS updates.
10. Hyperbaric Oxygen Therapy (APC 0659)
    (If you choose to comment on issues in this section, please include 
the caption ``Hyperbaric Oxygen Therapy'' at the beginning of your 
comment.)
    When hyperbaric oxygen therapy (HBOT) is prescribed for promoting 
the healing of chronic wounds, it typically is prescribed for 90 
minutes and billed using multiple units of HBOT on a single line or 
multiple occurrences of HBOT on a claim. In addition to the therapeutic 
time spent at full hyperbaric oxygen pressure, treatment involves 
additional time for achieving full pressure (descent), providing air 
breaks to prevent neurological and other complications from occurring 
during the course of treatment, and returning the patient to 
atmospheric pressure (ascent). The OPPS recognizes HCPCS code C1300 
(Hyperbaric oxygen under pressure, full body chamber, per 30 minute 
interval) for HBOT provided in the hospital outpatient setting.
    In the CY 2005 final rule with comment period (69 FR 65758 through 
65759), we finalized a ``per unit'' median cost calculation for HBOT 
using only claims with multiple units or multiple occurrences of HCPCS 
code C1300 because delivery of a typical HBOT service requires more 
than 30 minutes. We observed that claims with only a single occurrence 
of the code were anomalies, either because they reflected terminated 
sessions or because they were incorrectly coded with a single unit. In 
the same rule, we also established that HBOT would not generally be 
furnished with additional services that might be packaged under the 
standard OPPS APC median cost methodology. This enabled us to use 
claims with multiple units or multiple occurrences. Finally, we also 
used each hospital's overall cost-to-charge ratio (CCR) to estimate 
costs for HCPCS code C1300 from billed charges rather than the CCR for 
the respiratory therapy cost center. Comments on the CY 2005 proposed 
rule effectively demonstrated that hospitals report the costs and 
charges for HBOT in a wide variety of cost centers. We used this 
methodology to estimate payment for HBOT in CYs 2005 and 2006. For CY 
2007, we are proposing to continue using the same methodology to 
estimate a ``per unit'' median cost for HCPCS code C1300. Using 50,311 
claims with multiple units or multiple occurrences, we estimate a 
median cost of $98.36.
11. Myocardial Positron Emission Tomography (PET) Scans (APCs 0306, 
0307)
    (If you choose to comment on issues in this section, please include 
the caption ``Myocardial PET Scans'' at the beginning of your comment.)
    From August 2000 to December 31, 2005, under the OPPS we assigned 
to one clinical APC all myocardial positron emission tomography (PET) 
scan procedures, which were reported with multiple G-codes through 
March 31, 2005. Effective April 1, 2005, myocardial PET scans were 
reported with three CPT codes, specifically CPT codes 78459, 78491, and 
78492, under the OPPS. Public comments to the CY 2006 OPPS proposed 
rule suggested that the HCPCS codes describing multiple myocardial PET 
scans should be assigned to a separate APC from single study codes 
because their hospital resource costs are significantly higher than 
single scans. Review of the CY 2004 claims data for myocardial PET 
scans revealed a median cost of $2,482 for the 9 G-codes that describe 
multiple myocardial PET scans, based upon 978 single claims of 2,001 
total claims for multiple scan procedures. The CY 2004 claims data 
showed a median cost of $800 for the 6 G-codes describing single PET 
studies, based on 391 single claims of 575 total claims. A review of CY 
2003 claims data showed a similar pattern of significantly higher 
hospital costs for multiple myocardial PET studies in comparison with 
single studies, although there were fewer claims for the procedures in 
CY 2003 in comparison with CY 2004. In response to the comments 
received and based on this claims information, myocardial PET services 
were assigned to two clinical APCs for the CY 2006 OPPS. HCPCS codes 
for single scans were assigned to APC 0306 with a payment rate of 
$800.55, and HCPCS codes for the multiple scan procedures were assigned 
to APC 0307 with a payment rate of $2,484.88.
    Analysis of the latest CY 2005 claims data for myocardial PET scans 
reveals that the APC median costs for the single and multiple 
myocardial PET codes are $836 and $680 respectively, based on 296 
single claims for single studies and 1,150 single claims for multiple 
scan procedures. Despite more CY 2005 single claims for multiple scan 
procedures, the median cost of these procedures declined significantly 
from CY 2004 to CY 2005, dropping below the median cost of single 
studies. As indicated earlier, there was a significant coding change 
for myocardial PET services in CY 2005, with the reporting

[[Page 49567]]

of a single CPT code for multiple studies (CPT code 78492) for most of 
CY 2005, in comparison with nine G-codes in CY 2004. We examined the 
single bills for multiple scan procedures from CY 2004 and noted 17 
hospitals were represented, with the majority of those claims from a 
single hospital. In contrast, in the CY 2005 claims, 25 hospitals were 
represented in the single bills for multiple scan procedures, and no 
single hospital contributed a majority of claims to the median cost 
calculation. We also examined differences in charges associated with G-
codes versus the CPT code to determine if hospitals had adjusted the 
charge for the CPT code to reflect the termination of the multiple 
study G-codes. However, the individual charging practices of hospitals 
did not appear to vary with the use of a G-code versus the CPT code in 
either the CY 2004 or the CY 2005 claims. Greater volume of claims and 
consistent charging for both the G-codes and CPT code by hospitals 
suggest that the median appropriately captures the greater variability 
in relative hospital costs for multiple myocardial PET studies in the 
CY 2005 claims data.
    Based on our claims data, the use of myocardial PET scan technology 
has become more widely prevalent in hospitals, and as a result, we now 
have more data to support our proposed payment rates. We believe that 
the median costs from our CY 2005 claims data for myocardial PET scan 
services, calculated based upon our standard OPPS methodology and based 
on almost 1,500 single claims, for both the single and multiple scans, 
should be reflective of the hospital resources required to provide the 
services to Medicare beneficiaries in the outpatient hospital setting. 
Based on these data, the differential median costs of the single and 
multiple study procedures do not support the present two-level APC 
payment structure. Although we acknowledge that some people may believe 
that multiple scan procedures should require increased resources at 
some hospitals in comparison with single scans, particularly because of 
the longer scan times required for multiple studies, our data do not 
support a resource differential that would necessitate the placement of 
these single and multiple scan procedures into two separate APCs. As 
myocardial PET scans are being provided more frequently at a greater 
number of hospitals than in the past, it is possible that most 
hospitals performing multiple PET scans are particularly efficient in 
their delivery of higher volumes of these services and, therefore, 
incur hospital costs that are similar to those of single scans, which 
are provided less commonly.
    When all myocardial PET scan procedure codes are combined into a 
single clinical APC, as they were prior to CY 2006, the APC median cost 
for myocardial PET services is about $721, very similar to the $703 
median cost of their single CY 2005 clinical APC. Therefore, for CY 
2007, we are proposing to assign CPT codes 78459, 78491, and 78492 to a 
single APC, specifically, APC 0307 titled Myocardial Positron Emission 
Tomography (PET) Imaging, with a proposed median cost of $721. We 
believe that the assignment of these three CPT codes to APC 0307 is 
appropriate as the CY 2005 claims data reveal that more hospitals are 
providing multiple myocardial PET scan services, most myocardial PET 
scans are multiple studies, and the hospital resource costs of single 
and multiple studies are similar. We believe that the proposed median 
cost appropriately reflects the hospital resources associated with 
providing myocardial PET scans to Medicare beneficiaries in cost-
efficient settings. Further, we believe that the proposed rates are 
adequate to ensure appropriate access to these services for Medicare 
beneficiaries. We are seeking comments on our proposal to provide a 
single payment rate for all myocardial PET scans in CY 2007. The 
myocardial PET scan CPT codes and their CY 2007 proposed APC 
assignments are displayed in Table 17.

                                              Table 17.--Proposed CY 2007 APC Assignment for Myocardial PET
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                        CY 2006                                             Proposed CY
     HCPCS code           Short descriptor            CY 2006 SI         CY 2006 APC    payment       Proposed CY 2007 SI    Proposed CY     2007 APC
                                                                                          rate                                 2007 APC     median cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
78459...............  Heart muscle imaging     S.......................         0306      $800.55  S.......................         0307         $721.26
                       (PET).
78491...............  Heart image (PET),       S.......................         0306       800.55  S.......................         0307          721.26
                       single.
78492...............  Heart image (PET),       S.......................         0307     2,484.88  S.......................         0307          721.26
                       multiple.
--------------------------------------------------------------------------------------------------------------------------------------------------------

12. Radiology Procedures (APCs 0333, 0662, and Other Imaging APCs)
    (If you choose to comment on issues in this section, please include 
the caption ``Radiology Procedures'' at the beginning of your comment.)
    At its March 2006 meeting, the APC Panel made three recommendations 
regarding radiology services. These include the following:
     Reaffirming the CY 2005 recommendation that CMS postpone 
implementation of the multiple procedure reduction policy for imaging 
services as included in the CY 2006 OPPS proposed rule for CY 2007, to 
allow CMS to gather more data on the efficiencies associated with 
multiple imaging procedures that may already be reflected in OPPS 
payment rates for imaging services.
     Recommending that CMS review payment rates for computed 
tomography (CT) and computed tomographic angiography (CTA) procedures 
to ensure that their payment rates are comparatively consistent and 
that they accurately reflect resource use.
     Recommending that CMS invite comments on ways that 
hospitals can uniformly and consistently report charges and costs 
related to radiology services.
    In the CY 2006 OPPS final rule with comment period (70 FR 68707), 
we indicated that based on the APC Panel's recommendations and public 
comments received, we decided not to finalize our CY 2006 proposal to 
reduce OPPS payments for some second and subsequent diagnostic imaging 
procedures performed in the same session. Our analyses did not disprove 
the commenters' contentions that there are efficiencies already 
reflected in their hospital costs, and, therefore, their CCRs and the 
median costs for the procedures. Over the past 7 months, we have 
conducted additional studies of our hospital claims data for single and 
multiple diagnostic imaging procedures, and our analyses to date 
support continued deferral for CY 2007 of implementation of a multiple 
imaging procedure payment reduction policy in the OPPS. Therefore, we 
are accepting the APC Panel's recommendation to not adopt such a policy 
for CY 2007 pending the results of further analyses. Depending upon the 
findings from such studies, in a future rulemaking we may propose 
revisions to the structure of our

[[Page 49568]]

rates to further refine these rates in the context of additional study 
findings.
    We also are accepting the APC Panel's recommendation to review the 
CY 2007 proposed payment rates for CT and CTA procedures to ensure that 
their rates are comparatively consistent and accurately reflective of 
hospitals' resource costs. Presenters at the March 2006 APC Panel 
meeting indicated to the Panel that hospital resources for CTA 
procedures are similar to those for CT procedures that include scans 
without contrast followed by scans with contrast, but additional 
resources are required for the 3-dimensional reconstruction that is 
part of the CTA procedures. As a result of this image postprocessing, 
CTA scans display the vasculature in a 3-dimensional format rather than 
in the 2-dimensional cross-sectional images of conventional CT scans. 
Based upon CY 2005 claims data, the CY 2007 proposed median cost for 
APC 0333 for CT procedures that include scans without contrast 
material, followed by contrast scans to complete the studies is $309, 
and the CY 2007 proposed median cost for APC 0662 for CTA procedures is 
$304. As has been the case for the past several years, the median costs 
associated with these two APCs are virtually identical to one another 
and are also quite consistent with their historical costs from prior 
years of claims data. The CY 2007 proposed median costs for APCs 0333 
and 0662 are based on about 500,000 and 150,000 single claims, 
respectively. The stability of these APC median costs, based on large 
numbers of single claims, is consistent with our belief that the median 
costs of these APCs accurately reflect hospitals' resource use. From CY 
2004 to CY 2005 the number of CTA procedures performed in the 
outpatient department increased by 50 percent, whereas the number of CT 
procedures that included a scan without contrast followed by a scan 
with contrast to complete each full study increased by only about 1 
percent. The large annual increases in the OPPS frequencies of CTA 
procedures through CY 2005 provide no evidence that Medicare 
beneficiaries are experiencing difficulty accessing these services in 
the hospital outpatient setting. CTA procedures are being more commonly 
performed for various clinical indications, likely resulting in more 
consistent and efficient use of the associated image postprocessing 
technology. Accordingly, it is not surprising that the hospital costs 
of typical CTA procedures in contemporary medical practice are very 
similar to the hospital costs of the more involved and resource-
intensive complex CT services that, like CTA procedures, include scans 
without contrast material, followed by scans with contrast. Thus, we 
believe that our CY 2007 proposed payment rates for CT and CTA 
procedures are generally consistent with one another and accurately 
reflective of hospitals' resource costs.
    With respect to the APC Panel's recommendation regarding the 
reporting of costs and charges for radiology services, CMS requires 
hospitals to report their costs and charges through the cost report 
with sufficient specificity to support CMS' use of cost report data for 
monitoring and payment. Within generally accepted principles of cost 
accounting, we allow providers flexibility to accommodate the unique 
attributes of each institution's accounting systems. For example, 
providers must match the generally intended meaning of the line-item 
cost centers, both standard and nonstandard, to the unique 
configuration of department and service categories used by each 
hospital's accounting system. Also, while the cost report provides 
recommended bases of allocation for the general services cost centers, 
a provider is permitted, within specified guidelines, to use an 
alternative basis for a general service cost if it can justify to its 
fiscal intermediary that the alternative is more accurate than the 
recommended basis. This approach creates internal consistency between a 
hospital's accounting system and the cost report, but cannot guarantee 
the precise comparability of costs and charges for individual cost 
centers across institutions.
    However, we believe that achieving greater uniformity by, for 
example, specifying the exact components of individual cost centers, 
would be very burdensome for hospitals and auditors. Hospitals would 
need to tailor their internal accounting systems to reflect a national 
definition of a cost center. It is not clear that the marginal 
improvement in precision created by such a requirement would justify 
the additional administrative burden. The current hospital practice of 
matching costs to the general intended meaning of a cost center ensures 
that most services in the cost center will be comparable across 
providers, even if the precise composition of a cost center among 
hospitals differs. Further, every hospital provides a different mix of 
services. Even if CMS specified the components of each cost center, 
costs and charges on the cost report would continue to reflect each 
individual hospital's mix of services. At the same time, internal 
consistency is very important to the OPPS. Costs are estimated on 
claims by matching cost-to-charge ratios for a given hospital to their 
own claims data through a cost center-to-revenue code crosswalk. OPPS 
relative weights are based on the median cost for all services in an 
APC. The components resulting in CCRs for a given revenue code would 
have to be dramatically different for the providers contributing the 
majority of claims used to calculate an APC's median cost in order to 
impact relative weights.
    We are accepting the APC Panel's recommendation and specifically 
inviting comments on ways that hospitals can uniformly and consistently 
report charges and costs related to all cost centers, not just 
radiology, that also acknowledge the ubiquitous tradeoff between 
greater precision in developing CCRs and administrative burden 
associated with reduced flexibility in hospital accounting practices.

IV. Proposed OPPS Payment Changes for Devices

A. Proposed Treatment of Device-Dependent APCs

    (If you choose to comment on issues in this section, please include 
the caption ``Device-Dependent APCs'' at the beginning of your 
comment.)
1. Background
    Device-dependent APCs are populated by HCPCS codes that usually, 
but not always, require that a device be implanted or used to perform 
the procedure. For the CY 2002 OPPS, we used external data, in part, to 
establish the device-dependent APC medians used for weight setting. At 
that time, many devices were eligible for pass-through payment. For the 
CY 2002 OPPS, we estimated that the total amount of pass-through 
payments would far exceed the limit imposed by statute. To reduce the 
amount of a pro rata adjustment to all pass-through items, we packaged 
75 percent of the cost of the devices, using external data furnished by 
commenters on the August 24, 2001 proposed rule and information 
furnished on applications for pass-through payment, into the median 
costs for the device-dependent APCs associated with these pass-through 
devices. The remaining 25 percent of the cost was considered to be 
pass-through payment.
    In the CY 2003 OPPS, we determined APC medians for device-dependent 
APCs using a three-pronged approach. First, we used only claims with 
device codes on the claim to set the medians for these APCs. Second, we 
used

[[Page 49569]]

external data, in part, to set the medians for selected device-
dependent APCs by blending that external data with claims data to 
establish the APC medians. Finally, we also adjusted the median for any 
APC (whether device-dependent or not) that declined more than 15 
percent. In addition, in the CY 2003 OPPS we deleted the device codes 
(``C'' codes) from the HCPCS file in the belief that hospitals would 
include the charges for the devices on their claims, notwithstanding 
the absence of specific codes for devices used.
    In the CY 2004 OPPS, we used only claims containing device codes to 
set the medians for device-dependent APCs and again used external data 
in a 50/50 blend with claims data to adjust medians for a few device-
dependent codes when it appeared that the adjustments were important to 
ensure access to care. However, hospital device code reporting was 
optional.
    In the CY 2005 OPPS, which was based on CY 2003 claims data, there 
were no device codes on the claims and, therefore, we could not use 
device-coded claims in median calculations as a proxy for completeness 
of the coding and charges on the claims. For the CY 2005 OPPS, we 
adjusted device-dependent APC medians for those device-dependent APCs 
for which the CY 2005 OPPS payment median was less than 95 percent of 
the CY 2004 OPPS payment median. In these cases, the CY 2005 OPPS 
payment median was adjusted to 95 percent of the CY 2004 OPPS payment 
median. We also reinstated the device codes and made the use of the 
device codes mandatory where an appropriate code exists to describe a 
device utilized in a procedure. We also implemented HCPCS code edits to 
facilitate complete reporting of the charges for the devices used in 
the procedures assigned to the device-dependent APCs.
    In the CY 2006 OPPS, which was based on CY 2004 claims data, we set 
the median costs for device-dependent APCs for CY 2006 at the highest 
of: (1) The median cost of all single bills; (2) the median cost 
calculated using only claims that contained pertinent device codes and 
for which the device cost is greater than $1; or (3) 90 percent of the 
payment median that was used to set the CY 2005 payment rates. We set 
90 percent of the CY 2005 payment median as a floor rather than 85 
percent as proposed, in consideration of public comments that stated 
that a 15-percent reduction from the CY 2005 payment median was too 
large of a transitional step. We noted in our CY 2006 proposed rule 
that we viewed our proposed 85-percent payment adjustment as a 
transitional step from the adjusted medians of past years to the use of 
unadjusted medians based solely on hospital claims data with device 
codes in future years (70 FR 42714). We also incorporated, as part of 
our CY 2006 methodology, the recommendation to base payment on medians 
that were calculated using only claims that passed the device edits. As 
stated in the CY 2006 OPPS final rule with comment period (70 FR 
68620), we believed that this policy provided a reasonable transition 
to full use of claims data in CY 2007, which would include device 
coding and device editing, while better moderating the amount of 
decline from the CY 2005 OPPS payment rates.
2. Proposed CY 2007 Payment Policy
    For CY 2007, we are proposing to base the device-dependent APC 
medians on CY 2005 claims, the most current data available. As stated 
earlier, in CY 2005 we reinstated the use of device codes and made the 
reporting of device codes mandatory where an appropriate code exists to 
describe a device utilized. In CY 2005, we also implemented HCPCS code 
edits to facilitate complete reporting of the charges for the devices 
used in the procedures assigned to the device-dependent APCs. We 
implemented the first set of device edits on April 1, 2005, for those 
APCs for which the CY 2005 payment rate was based on an adjusted median 
cost. We continued to take public comment on the remaining device edits 
after April 1, 2005, and implemented device edits for the remaining 
device-dependent APCs on October 1, 2005. Subsequent to the 
implementation of the device edits, we received public comments that 
caused us to remove the requirement for edits for several APCs on the 
basis that the services in them do not always require the use of a 
device or there may be no suitable device codes available for reporting 
all devices that may be used to perform the procedures.
    For example, we removed the requirement for device codes for APC 
0080 (Diagnostic Cardiac Catheterization) based on the information 
provided by hospitals that the codes assigned to this APC do not always 
require a device for which there is an appropriate HCPCS code. 
Therefore, we no longer consider this APC to be device dependent and 
have removed it from the list of device-dependent APCs. In the case of 
some procedures assigned to other device-dependent APCs, where we 
determined that no device was required to provide a particular service 
or where there were no HCPCS codes that described all devices that 
could be used to furnish the service, we removed the requirement for a 
device code for the individual procedure code but retained the device 
requirement for other procedure codes assigned to that device-dependent 
APC.
    In its February 2005 meeting, the APC Panel recommended that we 
consider calculating the median costs for APCs 0107 (Insertion of 
Cardioverter Defibrillator) and 0108 (Insertion/Replacement/Repair of 
Cardioverter-Defibrillator Leads) by bypassing the line-item costs of 
CPT code 33241 (Subcutaneous removal of single or dual chamber pacing 
cardioverter-defibrillator pulse generator) and packaging the line 
item-costs of CPT codes 93640 (Electrophysiological evaluation of 
single or dual chamber pacing cardioverter-defibrillator leads 
including defibrillation threshold evaluation (induction of arrhythmia, 
evaluation of sensing and pacing for arrhythmia termination) at time of 
initial implantation or replacement) and 93641 (Electrophysiological 
evaluation of single or dual chamber pacing cardioverter-defibrillator 
leads including defibrillation threshold evaluation (induction of 
arrhythmia, evaluation of sensing and pacing for arrhythmia 
termination) at time of initial implantation or replacement; with 
testing of single or dual chamber pacing cardioverter-defibrillator) 
when these codes, separately or in combination, are reported on the 
same claim with HCPCS codes G0297 (Insertion of single chamber pacing 
cardioverter defibrillator pulse generator), G0298 (Insertion of dual 
chamber pacing cardioverter defibrillator pulse generator), G0299 
(Insertion or repositioning of electrode lead for single chamber pacing 
cardioverter defibrillator and insertion of pulse generator) and G0300 
(Insertion or repositioning of electrode lead(s) for dual chamber 
pacing cardioverter defibrillator and insertion of pulse generator), 
which are assigned to APCs 0107 and 0108. The APC Panel recommended 
bypassing the line-item costs for CPT code 33241 because members 
believed that when a pacing cardioverter-defibrillator (ICD) pulse 
generator removal is performed in the same operative session as the 
insertion of a new pulse generator described by a procedure code 
assigned to APC 0107 or 0108, the packaging on the claim is 
appropriately assigned to the procedure code in APC 0107 or 0108. 
Moreover, CPT codes 93640 and 93641 may only be correctly coded when 
the electrophysiologic evaluation of ICD leads is performed at the time 
of initial implantation or replacement of an ICD

[[Page 49570]]

pulse generator and/or leads, with or without testing of the pulse 
generator. Thus, the APC Panel expected that the costs of the 
evaluations of the ICD leads (CPT codes 93640 and 93641) could be 
appropriately packaged with the procedure codes that describe the 
insertion of ICD generators, which are assigned to APCs 0107 and 0108, 
or the insertion of ICD leads assigned to APCs 0106 (Insertion/
Replacement/Repair of Pacemaker and/or Electrodes), 0108, and 0418 
(Insertion of Left Ventricular Pacing Elect). Because APCs 0107 and 
0108 have typically had very few single bills on which the medians have 
been based, and because the APC Panel indicated that it believed that 
we could use many more claims if we bypassed CPT code 33241 and 
packaged CPT codes 93640 and 93641, we calculated median costs for APCs 
0107 and 0108 using these rules. We excluded claims that did not meet 
the device edits, and we also excluded token claims.
    The effect of packaging CPT codes 93640 and 93641 into claims that 
both pass the device edits and also contain no token charges for 
devices are shown in Table 19 below. This affected APCs 0106, 0107, 
0108, and 0418. Bypassing the line-item cost of CPT code 33241 could 
not be done for all claims on which this CPT code was reported because 
there are clinical circumstances in which the ICD pulse generator is 
removed and no new device is implanted. Therefore, the APC assignment 
for CPT code 33241 and the payment for that code need to reflect the 
packaging associated with the procedure when it is performed alone. 
Because of this problem with assigning packaging in all the 
circumstances in which the procedure may be reported, we decided 
against proposing to bypass CPT code 33241, either in general for all 
procedures or selectively, when it is reported with the procedures in 
APCs 0107 and 0108.
    However, CPT codes 93640 and 93641 are always performed during an 
operative procedure for ICD initial implantation or replacement or with 
implantation, revision or replacement of leads, and, therefore, it 
would be appropriate to package them into the surgical procedure with 
which they are performed. Moreover, as a result of the descriptors of 
the lead evaluation CPT codes, they should never be billed as single 
procedure claims and packaging them would also resolve the problem of 
setting their payment rates in part on the basis of claims that reflect 
erroneous coding. Packaging the costs of the intraoperative 
electrophysiologic testing of the ICD leads yields many more single 
bills on which to set median costs and also increases the median costs 
for APCs 0106, 0107, 0108, and 0418. Therefore, we are proposing to 
package CPT codes 93640 and 93641 for CY 2007.
    We calculated the median cost for device-dependent APCs using two 
different sets of claims. We first calculated a median cost using all 
single procedure claims for the procedure codes in those APCs. We also 
calculated a second median cost using only claims that contain allowed 
device codes and also for which charges for all device codes were in 
excess of $1.00 (nontoken charge device claims). We excluded claims for 
which the charge for a device was less than $1.01, in part, to 
recognize hospital charging practices due to a recall of cardioverter 
defibrillator and pacemaker pulse generators in CY 2005 for which the 
manufacturers provided replacement devices without cost to the 
beneficiary or hospital. We also found that there are other devices for 
which the charge was less than $1.01, and we removed those claims also.
    As expected, the median costs calculated using all single procedure 
bills, including both bills that lack appropriate device codes (where 
there are edits) and bills with token charges for devices, are, in many 
cases, less than the medians calculated using only claims that contain 
appropriate device codes and that have no token charges for devices. In 
some cases the medians are significantly different when claims either 
without device codes or which have only token device charges are 
removed. We believe that the claims that reflect the best estimated 
costs for these APCs, including the costs of the devices, are those 
claims that contain appropriate devices and which also have no token 
charges for devices. (See section IV.A.4. below for our discussion of 
payments when the hospital incurs no cost for the principal device 
required for the service.)
    When we compare the proposed median costs calculated using only CY 
2005 claims that contain correct device codes and which do not contain 
token charges for devices to the unadjusted median costs that were 
derived from CY 2004 claims data, we find that the medians for only 2 
APCs decline (6.3 percent for APC 0061 (Laminectomy or Incision for 
Implantation of Neurostimulator Electrodes, Excluding Cranial Nerve) 
and 2.78 percent for APC 0115 (Cannula/Access Device Procedures)). When 
we compared the proposed CY 2007 medians to the adjusted medians used 
to set the payment rates for CY 2006, only 6 APCs would decline more 
than 10 percent in median cost. This compares favorably to the data for 
the CY 2006 OPPS final rule with comment period in which 12 APCs 
declined more than 10 percent when the unadjusted median cost from the 
data for the CY 2006 OPPS final rule with comment period were compared 
to the adjusted median cost on which the CY 2005 OPPS payments were 
based. Some APC cost variation from year to year, whether increasing or 
decreasing, is to be expected.
    Therefore, we are proposing to base the payment rates for CY 2007 
for these device-dependent APCs on median costs calculated using claims 
with appropriate device codes and which have no token charges for 
devices reported on the claim. We do not believe that adjustment of 
these median costs is necessary to provide adequate payment for these 
services, and, therefore, we are not proposing to adjust the median 
costs for these APCs to moderate any decreases in medians from CY 2006 
to CY 2007. We recognize that, notwithstanding the device edits, it may 
continue to be necessary for purposes of median cost calculations to 
remove claims that do not contain devices because it is likely that 
there would be incidental occurrences of interrupted procedures in 
which a device is not used and does not appear on the claim. (The 
interrupted procedure modifier nullifies the device edit.) Moreover, 
there are likely to continue to be incidental occurrences of token 
charges for devices as a result of devices that are replaced without 
cost by the manufacturer. However, each of these circumstances could 
cause the procedure code median cost to underrepresent the cost of the 
complete procedure, including the device cost, where the hospital 
purchases the device.
    Hence, we believe that use of claims that meet the device edits and 
which do not contain token charges for devices are the appropriate 
claims to use to set the median costs for the device-dependent APCs, 
ensuring that the costs of the principal devices are included in the 
APC medians. In addition, we believe that, with our proposed changes to 
the OPPS packaging status of two codes for electrophysiologic 
evaluation of ICD leads, no special payment policies are needed to 
establish payment rates that correctly reflect the relative costs of 
these procedures to other procedures paid under the OPPS.

BILLING CODE 4120-01-P

[[Page 49571]]

[GRAPHIC] [TIFF OMITTED] TP23AU06.019


[[Page 49572]]


[GRAPHIC] [TIFF OMITTED] TP23AU06.020


[[Page 49573]]


[GRAPHIC] [TIFF OMITTED] TP23AU06.021

BILLING CODE 4120-01-C

                                      Table 19.--Effect of Packaging CPT Codes 93640 and 93641 on All Single Bills
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Proposed CY     Proposed CY     Proposed CY     Proposed CY
                                                                             Post cost      2007 single     2007 single     2007 single     2007 single
                APC                       SI           APC group title         total      bill frequency    bill median   bill frequency    bill median
                                                                             frequency      93640/93641     93640/93641     93640/93641     93640/93641
                                                                                           not packaged    not packaged      packaged        packaged
--------------------------------------------------------------------------------------------------------------------------------------------------------
0106..............................         T        Insertion/                      3819             457       $2,459.08             494       $2,549.70
                                                     Replacement/Repair
                                                     of Pacemaker and/or
                                                     Electrodes.
0107..............................         T        Insertion of                   16276             481        9,669.32             886       11,215.82
                                                     Cardioverter-
                                                     Defibrillator.
0108..............................         T        Insertion/                      9075             929       18,030.96            2950       22,362.68
                                                     Replacement/Repair
                                                     of Cardioverter-
                                                     Defibrillator Leads.
0418..............................         T        Insertion of Left               4824             142        5,098.03             225        9,696.51
                                                     Ventricular Pacing
                                                     Elect.
--------------------------------------------------------------------------------------------------------------------------------------------------------

3. Devices Billed in the Absence of an Appropriate Procedure Code
    In the course of examining claims data for creation of the payment 
rates for this proposed rule, we identified circumstances in which 
hospitals billed a device code but failed to also bill any procedure 
code with which the device could be used correctly. These errors in 
billing lead to the costs of the device being packaged with an 
incorrect procedure code and also cause the hospital to be paid 
incorrectly for the service furnished if the device was appropriately 
reported. We discussed the billing of devices with incorrect procedure 
codes with the APC Panel at its March 2006 meeting, and the APC Panel 
recommended that we explore the extent to which it would be appropriate 
to establish edits for HCPCS device codes to ensure that hospitals also 
bill procedures in which the devices would be used on the same claim.
    We examined our CY 2005 claims data and found that incorrect 
billing occurs more often with some devices than with others. We are 
taking this opportunity to inform the public that we expect to 
implement device to procedure code edits for the specified devices and 
their associated procedures, which we believe must be reported on a 
claim with the specified device for the claim to be correctly coded and 
the device costs properly attributed to procedures with which they are 
used. The devices for which we expect to implement edits are shown 
below in Table 20 and are posted on the CMS outpatient hospital Web 
site, along with our initial draft of all the procedures with which 
they could be appropriately used and thus reported. We believe the 
establishment of claims edits reflects merely operational and 
administrative practice. However, as the public may assist in 
establishing appropriate edits, we, therefore, are asking that comments 
regarding the specific associations of device codes and procedure codes 
be provided to the following e-mail address: OutpatientPPS@cms.hhs.gov. 
This is the same e-mail address to which comments on the existing 
procedure to device edits should be directed.
    Comments submitted on this issue to this mail box are not comments 
on this proposed rule and we will not respond to them in the CY 2007 
OPPS final rule.

 Table 20.--Devices Which Must Be Billed With Associated Procedure Codes
------------------------------------------------------------------------
                  Device                             Description
------------------------------------------------------------------------
C1721.....................................  AICD, dual chamber.
C1722.....................................  AICD, single chamber.
C1767.....................................  Generator, neuro non-
                                             recharg.
C1777.....................................  Lead, AICD, endo single
                                             coil.
C1778.....................................  Lead, neurostimulator.

[[Page 49574]]


C1779.....................................  Lead, pmkr, transvenous VDD.
C1785.....................................  Pmkr, dual, rate-resp.
C1786.....................................  Pmkr, single, rate-resp.
C1820.....................................  Generator, neuro rechg bat
                                             sys.
C1882.....................................  AICD, other than sing/dual.
C1895.....................................  Lead, AICD, endo dual coil.
C1896.....................................  Lead, AICD, non sing/dual.
C1897.....................................  Lead, neurostim test kit.
C1898.....................................  Lead, pmkr, other than
                                             trans.
C1899.....................................  Lead, pmkr/AICD combination.
C1900.....................................  Lead, coronary venous.
C2619.....................................  Pmkr, dual, non rate-resp.
C2620.....................................  Pmkr, single, non rate-resp.
C2621.....................................  Pmkr, other than sing/dual.
------------------------------------------------------------------------

4. Proposed Payment Policy When Devices are Replaced Without Cost or 
Where Credit for a Replaced Device Is Furnished to the Hospital
    As we discuss above in the context of the calculation of median 
costs for ICDs and pacemakers, in recent years there have been several 
field actions and recalls with regard to failure of these devices. In 
many of these cases, the manufacturers have offered replacement devices 
without cost to the hospital or credit for the device being replaced if 
the patient required a more expensive device. In some circumstances 
manufacturers have also offered, through a warranty package, to pay 
specified amounts for unreimbursed expenses to persons who had 
replacement devices implanted. In addition, we believe that incidental 
device failures that are covered by manufacturer warranties occur 
routinely. While we understand that some device malfunctions may be 
inevitable as medical technology grows increasingly sophisticated, we 
believe that early recognition of problems would reduce the number of 
people with the potential to be adversely affected by these device 
problems. The medical community needs heightened and early awareness of 
patterns of device failures, voluntary field actions, and recalls so 
that they can take appropriate action to care for our beneficiaries. 
Systematic efforts must be undertaken by all interested and involved 
parties, including manufacturers, insurers, and the medical community, 
to ensure that device problems are recognized and addressed as early as 
possible so that people's health is protected and high quality medical 
care is provided. We are taking several steps to assist in the early 
recognition and analysis of patterns of device problems to minimize the 
potential for harmful device-related effects on the health of Medicare 
beneficiaries and the public in general.
    In recent years, CMS has recognized the importance of data 
collection as a condition of Medicare coverage for selected services. 
In 2005, CMS issued a National Coverage Determination (NCD) that 
expanded coverage of ICDs and required registry participation when the 
devices were implanted for certain clinical indications. The NCD 
included this requirement in order to ensure that the care received by 
Medicare beneficiaries was reasonable and necessary and, therefore, 
appropriately reimbursed. Presently, the American College of 
Cardiology--National Cardiovascular Data Registry (ACC--NCDR) collects 
these data and maintains the registry.
    In addition to ensuring appropriate payment of claims, collection, 
and ongoing analysis of ICD implantation, data can speed public health 
action in the event of future device recalls. The systematic recording 
of device manufacturer and model number can enhance patient and 
provider notification. Analysis of registry data may uncover patterns 
in complication rates (for example, device malfunction, device-related 
infection, and early battery depletion) associated with particular 
devices that signify the need for a more specific investigation. 
Patterns found in registry data may identify problems earlier than the 
currently available mechanisms, which do not systematically collect 
such detailed information surrounding procedures.
    We encourage the medical community to work to develop additional 
registries for implantable devices, so that timely and comprehensive 
information is available regarding devices, recipients of those 
devices, and their health status and outcomes. While participation in 
an ICD registry is required as a condition of coverage for ICD 
implantation for certain clinical conditions, we believe that the 
potential benefits of registries extend well beyond their application 
in Medicare's specific national coverage determinations. As medical 
technology continues to swiftly advance, data collection regarding the 
short and long term outcomes of new technologies, and especially 
concerning implanted devices that may remain in the bodies of patients 
for their lifetimes, will be essential to the timely recognition of 
specific problems and patterns of complications. This information will 
facilitate early interventions to mitigate harm and improve the quality 
and efficiency of health care services.
    Moreover, data from registries may help further the development of 
high quality, evidence-based clinical practice guidelines for the care 
of patients who may receive device-intensive procedures. In turn, 
widespread use of evidence-based guidelines may reduce variation in 
medical practice, leading to improved personal and public health. 
Registry information may also contribute to the development of more 
comprehensive and refined quality metrics that may be used to 
systematically assess and then improve the safety and quality of health 
care. Such improvements in the quality of care that result in better 
personal health will require the sustained commitment of industry, 
payers, health care providers, and others towards that goal, along with 
excellent and open communication and rapid system-wide responses in a 
comprehensive effort to protect and enhance the health of the public. 
We look forward to further discussions with the public about new 
strategies to recognize device problems early and how to definitively 
address them, in order to minimize both the harmful health effects and 
increased health care costs that may result.
    In addition, we believe that the routine identification of Medicare 
claims where hospitals identify and then appropriately report selected 
services performed under the OPPS when devices are replaced without 
cost to the hospital or with full credit to the hospital for the cost 
of the replaced device, should provide comprehensive information 
regarding the outpatient hospital experiences of Medicare beneficiaries 
with certain devices that are being replaced. Because Medicare 
beneficiaries are common recipients of implanted devices, this claims 
information may be particularly helpful in identifying patterns of 
device problems early in their natural history so that appropriate 
strategies to reduce future problems may be developed.
    In addition to our concern for the public health, we also have a 
fiduciary responsibility to the Medicare trust fund to ensure that 
Medicare pays only for covered services. Therefore, we are proposing, 
effective for services furnished on or after January 1, 2007, to reduce 
the APC payment and beneficiary copayment for selected APCs in cases in 
which an implanted

[[Page 49575]]

device is replaced without cost to the hospital or with full credit for 
the removed device. Specifically, we are proposing to revise the 
existing regulations by adding new Sec.  419.45, Payment and copayment 
reduction for replaced devices. This regulation is intended to cover 
certain devices for which credit for the replaced device is given or 
which are replaced as a result of or pursuant to a warranty, field 
action, voluntary recall, involuntary recall, and certain devices which 
are provided free of charge. It would provide for a reduction in the 
APC payment rate when we determine that the device is replaced without 
cost to the provider or beneficiary or when the provider receives full 
credit for the cost of a replaced device. The amount of the reduction 
to the APC payment rate would be calculated in the same manner as the 
offset amount that would be applied if the implanted device assigned to 
the APC had pass-through status as defined under Sec.  419.66. The 
beneficiary's copayment amount would be calculated based on the reduced 
APC payment rate.
    We believe that this is appropriate because in these cases the full 
cost of the replaced device is not incurred and, therefore, we believe 
that an adjustment to the APC payment is necessary to remove the cost 
of the device. We believe that the averaging nature of the calculation 
of the amount of the adjustment causes it to be appropriately applied 
to cases of credit for the replaced device, regardless of whether there 
is a residual cost due to the implantation of a more expensive device.
    We also believe that the proposed adjustment is consistent with 
section 1862(a)(2) of the Act, which excludes from Medicare coverage an 
item or service for which neither the beneficiary nor anyone on his or 
her behalf has an obligation to pay. Payment of the full APC payment 
rate in these cases in which the device was replaced under warranty or 
in which there was a full credit for the price of the recalled or 
failed device effectively results in Medicare payment for a noncovered 
item. Moreover, it results in creation of a beneficiary liability for 
the copayment associated with the device for which the beneficiary has 
no liability. Therefore, we are proposing to adjust the APC payment 
rate in these circumstances under the authority of section 
1833(t)(2)(E) of the Act, which permits us to make equitable 
adjustments to the OPPS payment rates.
    We recognize that in many cases, the packaged cost of the device is 
a relatively modest part of the APC payment for the procedure into 
which the device cost is packaged. In the case of devices of modest 
cost, we believe that the averaging nature of payments under the OPPS 
based on the conversion of charges to costs with CCRs would incorporate 
any significant savings from a warranty replacement, field action, or 
recall into the payment rate for the associated procedural APC and that 
no specific adjustment would be necessary or appropriate. However, in 
other cases, such as implantation of an ICD, the cost of the device is 
the majority of the cost of the APC and payment at the full payment 
rate for the procedural APC would pay the hospital much in excess of 
its incurred cost of the service.
    As we discuss above, we are proposing to set the APC payment rates 
for device-dependent APCs for the CY 2007 OPPS using only claims that 
contain appropriate devices to ensure that we make appropriate full 
payment when the hospital initially incurs the full cost of the device. 
Beginning in CY 2005, we required that device codes be billed for 
devices used and specifically required that hospitals bill certain 
device codes for some services. We are using the CY 2005 claims to set 
the payment rates for the CY 2007 OPPS. Currently, where the device is 
furnished without cost to the hospital, we have authorized hospitals to 
charge less than $1.01, although Medicare's longstanding policy has 
been that, in these cases, providers may not charge for the device 
furnished to them without cost. (See the Medicare Internet Only Manual, 
Medicare Benefit Policy Manual, Publication 100-02 Chapter 16, section 
40.4.)
    We authorized this charge because the CMS device edits require that 
the hospital must report an appropriate device if they bill for certain 
codes that cannot be performed without a device or the claim will be 
returned. Moreover, the Fiscal Intermediary Standard System will not 
accept the claim unless there is a charge for each HCPCS code billed. 
In addition, we were seeking a means of identifying these recall cases 
in the data. Therefore, by authorizing hospitals to charge less than 
$1.01 for the device we enabled the claim to be paid and also provided 
a mechanism for identifying devices for which the hospital incurred no 
expense.
    Where we set the payment rates for these device-dependent APCs 
using only claims that contain the full costs of devices when they are 
purchased by hospitals and exclude claims for which there is no 
appropriate device code or a charge for the device of less than $1.01, 
the proposed APC payments into which the full costs of the devices have 
been packaged would result in excessive program payments and 
beneficiary copayments for the services being furnished if the devices 
were provided without cost to hospitals. To avoid excessive payments in 
these circumstances, as noted previously we are proposing to adjust the 
APC payment rates when implanted devices have been replaced without 
cost to the hospital or beneficiary or where full credit for such a 
device has been given because the replacement device is of greater cost 
than the originally implanted device.
    We are proposing that the adjustment would be limited to the APCs 
listed in Table 21, but only when the purpose of the procedure is to 
replace a device that is reported by a HCPCS code in Table 22 which was 
furnished without cost or at full credit by the manufacturer. We are 
proposing that the following three criteria must each be met for an APC 
to be subject to the adjustment. We selected the APCs in Table 21 on 
the basis of these three criteria.
    The first criterion is that all procedures assigned to the selected 
APCs must require implantable devices that would be reported if device 
replacement procedures were performed. Therefore, the device being 
replaced must be necessary for the service to be furnished and without 
the devices, the services assigned to the APCs could not be performed. 
For services, and, therefore, their assigned APCs, where a device is 
not needed or where it may or may not be needed to perform a procedure, 
we do not believe that reducing the payment for the APCs would be 
appropriate because the charges for the devices are unlikely to be a 
significant factor in establishing the rates for the APCs.
    The second criterion is that the required devices must be 
surgically inserted or implanted devices that remain in the patient's 
body after the conclusion of the procedures, at least temporarily. We 
believe this is necessary to establish that the replacement device is a 
direct replacement for the device being removed. In cases of failures 
of devices that are surgically inserted or implanted but do not remain 
in the patient's body after the conclusion of procedures, we believe 
that it is highly likely that the replacement device is not 
specifically used to care for the patient on whom the original 
defective device was used and that, where a defective device of this 
type is used, there is no savings to the hospital. For example, if a 
vascular catheter fails during a procedure, we believe that the 
physician will probably

[[Page 49576]]

use another similar catheter to finish the procedure. In these cases 
the hospital would correctly charge for the catheter that was used, and 
there would be no savings to the hospital from that procedure. The 
hospital would likely charge for both the defective device and the 
device used to complete the procedure because both catheters were used 
to provide the full service. We believe that if a replacement catheter 
is furnished to the hospital under warranty from the manufacturer, it 
would be used at a much later date on a different patient, it would 
most likely be charged to that patient account, and it would be 
unlikely to be specifically identified as being furnished without cost 
to the hospital. In these cases, we expect that any cost savings from 
the replacement devices such as these (for example, catheters) that are 
furnished without cost would be incorporated into the median costs for 
the procedures in the normal course of the data process through 
application of the CCRs generated from the cost reports.
    The third criterion is that the offset percent for the APC (that 
is, the median cost of the APC without device costs divided by the 
median cost of the APC with devices) must be significant. For this 
purpose, we are defining a significant offset percent as exceeding 40 
percent. We believe that this percent is appropriate because our 
studies have shown that approximately 60 percent of the cost of OPPS 
services is wage-related, and that approximately 40 percent of the cost 
of OPPS services is not wage related. This is why we wage adjust 60 
percent of the APC payment rates for all APCs, including APCs for which 
a greater percentage of the APC payment is for the cost of a device.
    We believe that once the device share of an APC exceeds the 40 
percent we attribute to costs other than wage costs (for example, 
device costs, capital costs, plant costs, and supplies other than 
devices), the device cost is a significant part of the APC cost. 
Therefore, where the device costs in an APC exceed 40 percent, which is 
the average of all types of nonwage-related costs across all APCs, we 
are proposing to define the device costs as ``significant'' for 
purposes of this proposed policy.
    We recognize that it may be appropriate to define ``significant'' 
for this purpose at a different percentage of the APC cost because 
there are costs other than device costs (for example, capital costs and 
other supply costs) in the 40 percent of service costs to which the 
wage adjustment does not apply. We would reassess for future years 
whether it is appropriate to define ``significant'' for this purpose at 
a level other than 40 percent.
    For purposes of making the proposed adjustment, we would adapt the 
methodology that we have employed to establish an offset for the device 
costs incorporated into APCs in cases where a pass-through device is 
also being billed. We currently calculate the offset amount by first 
calculating a median including the device costs and then calculating a 
median excluding device costs using single bills that contain devices. 
We then divide the ``without device'' median by the ``with device'' 
median and subtract the percent from 100 to acquire the percent of cost 
attributable to devices in the APC. We apply this percent to the 
payment rate of the APC to determine the offset amount. For example, 
this is the methodology we used to calculate the offset amount for APC 
0222 when current pass-through device C1820 (Generator, neuro rechg bat 
sys) is billed on the same claim. We believe that it is appropriate to 
apply this same methodology in circumstances when we need to remove the 
cost of the device from the APC payment, not because the device is 
being paid under pass-through but because the hospital is either not 
incurring the cost for the replaced device or has been given full 
credit for the replaced device. In both cases, the intent is to remove 
the cost of the device from the APC payment rate.
    Using this methodology, we calculated the proposed offset amounts 
in Table 21 by first calculating an APC median cost including device 
costs and then calculating a median cost excluding device costs, using 
only single bills that meet our device edits and do not have token 
charges for devices. We then divided the ``without device'' median cost 
by the ``with device'' median cost and subtracted the percent from 100 
to acquire the percent of cost attributable to devices in the APC. We 
next applied this percent to the payment rate for the APC to determine 
the offset amount.
    The following is an example of the payment reduction in the case of 
replacement of an ICD under warranty. Where the cardioverter 
defibrillator pulse generator described by HCPCS code C1721 (AICD, dual 
chamber) is replaced under warranty during a procedure described by 
HCPCS code G0298 (Insertion of dual chamber pacing cardioverter 
defibrillator pulse generator), the hospital would report HCPCS code 
G0298 with a specified modifier and would also report HCPCS code C1721 
with a token charge for the device. Assuming the hospital had a wage 
index of 1, the payment rate for APC 0107 after adjustment would be 
$1862.27. That is, the adjusted payment rate would equal the unadjusted 
payment rate for APC 0107 ($17,185.34) less the warranty reduction 
percentage in Table 21 of 89.13 percent ($15,317.29). Because the 
adjustment amount is set for the APC, the same adjustment amount would 
be removed if devices reported under HCPCS code C1722 or C1882 were 
reported with HCPCS code G0297. This is identical to the amount of 
adjustment that would apply to the payment for a pass-through device if 
there were, hypothetically, a new ICD to which we had given pass-
through status (no ICD currently has pass-through status).
    We are proposing to both adjust the APC payment to remove payment 
for the device furnished without cost to the hospital or beneficiary 
and also to decrease the beneficiary copayment in proportion to the 
reduced APC payment so that the beneficiary would, in many but not all 
cases, share in the cost savings attributable to the provision of the 
device without cost by the manufacturer. We are proposing that when a 
device is replaced without cost to the hospital under warranty or 
recall or a credit is provided for the cost of a failed or recalled 
device (unlike cases of offset for a pass-through device), the 
beneficiary's copayment would be calculated based on the reduced APC 
payment rate, maintaining the same percentage copayment as applies to 
the unadjusted APC payment if the inpatient deductible is not exceeded. 
We believe that it is appropriate to reduce the beneficiary copayment 
in these cases because the device is being furnished or credited by the 
manufacturer without obligation on the part of the beneficiary. We 
note, however, that in the case of some high cost APCs, making the 
payment adjustment in a recall or warranty situation may not result in 
reduction of the copayment because the copayment, although based on the 
reduced payment rate, may continue to exceed the inpatient deductible 
and, therefore, would continue to be set at the inpatient deductible.
    In contrast, in the case of pass-through devices, the beneficiary 
is liable for the copayment on the full APC amount (which, in the case 
of high cost APCs, is limited to the Medicare inpatient deductible) but 
pays no copayment for the incremental cost of the pass-through device. 
This is appropriate in the case of payment for pass-through devices 
because the hospital incurs costs for both the service and the device, 
and Medicare pays for both the service through the full APC

[[Page 49577]]

payment and for the incremental cost of the pass-through device above 
the costs of associated devices already reflected in the APC payment at 
charges reduced to cost by a CCR. The pass-through payment amount is 
reduced only to prevent the program from making duplicate payment for a 
portion of the device, once as part of the APC payment and once through 
the pass-through payment.
    We are proposing to implement the adjustment through the use of an 
appropriate modifier specific to a device replacement without cost or 
crediting of the cost of a device by the manufacturer. Hospitals would 
be required to report the modifier appended to a specific procedure on 
claims for services when two conditions are met. The first condition is 
that the procedure is assigned to one of the APCs in Table 21. We have 
discussed above the criteria that we employed for selecting the APCs in 
Table 21. The second condition is that the device for which the 
manufacturer furnished a replacement device (or provided credit for the 
device being replaced) is one of the devices included in Table 22. We 
are restricting the devices to which the adjustment would apply to 
those included in Table 22 in order to ensure that the adjustment is 
not triggered by the replacement of an inexpensive device whose cost 
does not constitute a significant proportion of the total payment rate 
for an APC.
    The presence of the modifier would trigger the adjustment in 
payment for the APCs in Table 21. While we recognize that this creates 
a reporting burden for hospitals, we believe the reporting requirement 
is unavoidable. Only hospitals can report whether the circumstances for 
reduced payment as described above are met and, therefore, we see no 
option other than to have hospitals report this information to us. We 
recognize that the current FB modifier (``Item furnished without cost 
to provider, supplier or practitioner'') may not be appropriate in 
cases in which the replacement device is a more expensive device than 
the device being removed and may need to be changed to expand its use 
for all potential APC payment adjustment scenarios.
    Our proposed policy would accomplish three important goals. First 
and foremost, it would advise us of the extent to which devices are 
being replaced due to device failures so that, if patterns are 
identified, we can explore them to see if there are systemic problems 
with certain devices. The reporting of a specific modifier with certain 
procedure codes would allow us to examine patterns of delivery of 
specific hospital services when implanted devices are replaced without 
cost or with full credit for the cost of a device by the manufacturer, 
in comparison with publicly available information about problematic 
devices. Analysis of outpatient hospital claims would serve as an 
additional source of information to the medical community about 
patterns of device failures, voluntary field actions, and recalls, 
contributing to improved awareness and understanding of problems.
    Secondly, it would ensure equitable adjustment to the payments for 
surgical procedures to replace problematic devices by providing 
payments to hospitals only for the nondevice related procedural costs 
when a device is replaced without cost to the hospital for the device 
or with full credit for the removed device. Thirdly, it would also 
identify those claims that contain reduced device charges due to the 
full credit provided by the manufacturer for a replaced device so that 
in the future we can assess the impact of these claims on median costs 
for the services into which the device costs are packaged.
    This proposed policy would be effective for services furnished on 
or after January 1, 2007. We believe that this proposed policy is 
necessary to enable us to secure claims data that may be used to 
identify trends in device problems that lead to device replacements. It 
is also necessary to fulfill our fiduciary responsibility to the 
Medicare program by not providing payments for items that are excluded 
from coverage under Medicare law because neither the beneficiary nor 
any party on his or her behalf has an obligation to pay.

  Table 21.--Proposed Adjustment to APCs in Cases of Replacement of or
                Full Credit for Failed or Recalled Device
------------------------------------------------------------------------
                                                               CY 2007
                                                               proposed
       APC               SI            APC group title          offset
                                                               percent
------------------------------------------------------------------------
0039.............  S              Level I Implantation of         78.51%
                                   Neurostimulator.
0040.............  S              Percutaneous Implantation       54.66%
                                   of Neurostimulator
                                   Electrodes, Excluding
                                   Cranial Nerve.
0061.............  S              Laminectomy or Incision         60.59%
                                   for Implantation of
                                   Neurostimulator
                                   Electrodes, Excludin.
0089.............  T              Insertion/Replacement of        77.14%
                                   Permanent Pacemaker and
                                   Electrodes.
0090.............  T              Insertion/Replacement of        74.56%
                                   Pacemaker Pulse
                                   Generator.
0106.............  T              Insertion/Replacement/          41.04%
                                   Repair of Pacemaker and/
                                   or Electrodes.
0107.............  T              Insertion of Cardioverter-      89.13%
                                   Defibrillator.
0108.............  T              Insertion/Replacement/          89.15%
                                   Repair of Cardioverter-
                                   Defibrillator Leads.
0222.............  T              Implantation of                 78.10%
                                   Neurological Device.
0225.............  S              Implantation of                 80.62%
                                   Neurostimulator
                                   Electrodes, Cranial
                                   Nerve.
0226.............  T              Implantation of Drug            62.21%
                                   Infusion Reservoir.
0227.............  T              Implantation of Drug            81.50%
                                   Infusion Device.
0229.............  T              Transcatherter Placement        42.32%
                                   of Intravascular Shunts.
0259.............  T              Level VI ENT Procedures..       84.03%
0315.............  T              Level II Implantation of        83.52%
                                   Neurostimulator.
0385.............  S              Level I Prosthetic              46.88%
                                   Urological Procedures.
0386.............  S              Level II Prosthetic             61.32%
                                   Urological Procedures.
0418.............  T              Insertion of Left               86.11%
                                   Ventricular Pacing Elect.
0654.............  T              Insertion/Replacement of        76.73%
                                   a permanent dual chamber
                                   pacemaker.
0655.............  T              Insertion/Replacement/          76.89%
                                   Conversion of a
                                   permanent dual chamber
                                   pacemaker.
0680.............  S              Insertion of Patient            77.03%
                                   Activated Event
                                   Recorders.
0681.............  T              Knee Arthroplasty........       73.26%
------------------------------------------------------------------------


[[Page 49578]]


Table 22.--Devices for Which the Proposed Modifier Must Be Reported With
 the Procedure Code When Furnished Without Cost or at Full Credit for a
                             Replaced Device
------------------------------------------------------------------------
              Device                             Description
------------------------------------------------------------------------
C1721.............................  AICD, dual chamber.
C1722.............................  AICD, single chamber.
C1764.............................  Event recorder, cardiac.
C1767.............................  Generator, neurostim, imp.
C1771.............................  Rep dev, urinary, w/sling.
C1772.............................  Infusion pump, programmable.
C1776.............................  Joint device (implantable).
C1777.............................  Lead, AICD, endo single coil.
C1778.............................  Lead, neurostimulator.
C1779.............................  Lead, pmkr, transvenous VDD.
C1785.............................  Pmkr, dual, rate-resp.
C1786.............................  Pmkr, single, rate-resp.
C1813.............................  Prosthesis, penile, inflatab.
C1815.............................  Pros, urinary sph, imp.
C1820.............................  Generator, neuro rechg bat sys.
C1882.............................  AICD, other than sing/dual.
C1891.............................  Infusion pump, non-prog, perm.
C1895.............................  Lead, AICD, endo dual coil.
C1896.............................  Lead, AICD, non sing/dual.
C1897.............................  Lead, neurostim, test kit.
C1898.............................  Lead, pmkr, other than trans.
C1899.............................  Lead, pmkr/AICD combination.
C1900.............................  Lead coronary venous.
C2619.............................  Pmkr, dual, non rate-resp.
C2620.............................  Pmkr, single, non rate-resp.
C2621.............................  Pmkr, other than sing/dual.
C2622.............................  Prosthesis, penile, non-inf.
C2626.............................  Infusion pump, non-prog, temp.
C2631.............................  Rep dev, urinary, w/o sling.
L8614.............................  Cochlear device/system.
------------------------------------------------------------------------

B. Proposed Pass-Through Payments for Devices

    (If you choose to comment on issues in this section, please include 
the caption ``Pass-Through Devices'' at the beginning of your comment.)
1. Expiration of Transitional Pass-Through Payments for Certain Devices
a. Background
    Section 1833(t)(6)(B)(iii) of the Act requires that, under the 
OPPS, a category of devices be eligible for transitional pass-through 
payments for at least 2, but not more than 3, years. This period begins 
with the first date on which a transitional pass-through payment is 
made for any medical device that is described by the category. The 
device category codes became effective April 1, 2001, under the 
provisions of the BIPA. Prior to pass-through device categories, 
Medicare payments for pass-through devices under the OPPS were made on 
a brand-specific basis. All of the initial 97 category codes that were 
established as of April 1, 2001, have expired; 95 categories expired 
after CY 2002, and 2 categories expired after CY 2003. In addition, 
nine new categories have expired since their creation. We currently 
have no category codes for pass-through devices that will expire 
January 1, 2007. We created one new category effective January 1, 2006, 
for C1820 (Generator, neurostimulator (implantable), with rechargeable 
battery and charging system), which we are proposing to continue to pay 
under the pass-through provision in CY 2007 under the OPPS. This 
category was created after we published modifications to our criteria 
in the CY 2006 OPPS final rule with comment period on November 10, 2005 
(70 FR 68628 through 68631) allowing CMS to refine previous pass-
through category descriptions that would have prevented us from making 
pass-through payments for a new technology that otherwise met our 
criteria. These modifications amended the original criteria and process 
for creating additional device categories for pass-through payment that 
we published on November 2, 2001 (66 FR 55850 through 55857). Under our 
established policy, we base the expiration dates for the category codes 
on the date on which a category was first eligible for pass-through 
payment.
    In the November 1, 2002 OPPS final rule, we established a policy 
for payment of devices included in pass-through categories that are due 
to expire (67 FR 66763). For CY 2003 through CY 2006, we packaged the 
costs of the devices no longer eligible for pass-through payments into 
the costs of the procedures with which the devices were billed in the 
claims data used to set the payment rates for those years. 
Brachytherapy sources, which are now separately paid in accordance with 
section 1833(t)(2)(H) of the Act, are an exception to this established 
policy (with the exception of brachytherapy sources for prostate 
brachytherapy, which were packaged in the CY 2003 OPPS only).
b. Proposed Policy for CY 2007
    As we stated earlier, currently we have one effective device 
category for pass-through payment, C1820, which we created for pass-
through payment effective January 1, 2006. We are proposing to continue 
to make payment under the pass-through provisions for category C1820 
for CY 2007. We are proposing that this category would expire from 
pass-through payment after December 31, 2007. This would provide the 
category transitional pass-through payment status for a 2-year period, 
in accordance with the statutory requirement that no category be paid 
as a pass-through device for less than 2 years, nor more than 3 years.
2. Provisions for Reducing Transitional Pass-Through Payments To Offset 
Costs Packaged Into APC Groups
a. Background
    In the November 30, 2001 OPPS final rule, we explained the 
methodology we used to estimate the portion of each APC payment rate 
that could reasonably be attributed to the cost of the associated 
devices that are eligible for pass-through payments (66 FR 59904). 
Beginning with the implementation of the CY 2002 OPPS quarterly update 
(April 1, 2002), we deducted from the pass-through payments for the 
identified devices an amount that reflected the portion of the APC 
payment amount that we determined was associated with the cost of the 
device, as required by section 1833(t)(6)(D)(ii) of the Act. In the 
November 1, 2002 interim final rule with comment period, we published 
the applicable offset amounts for CY 2003 (67 FR 66801).
    For the CY 2002 and CY 2003 OPPS updates, to estimate the portion 
of each APC payment rate that could reasonably be attributed to the 
cost of an associated device eligible for pass-through payment, we used 
claims data from the period used for recalibration of the APC rates. 
That is, for CY 2002 OPPS updating, we used CY 2000 claims data, and 
for CY 2003 OPPS updating, we used CY 2001 claims data. For CY 2002, we 
used median cost claims data based on specific revenue centers used for 
device-related costs because C-code cost data were not available until 
CY 2003. For CY 2003, we calculated a median cost for every APC without 
packaging the costs of associated C-codes for device categories that 
were billed with the APC. We then calculated a median cost for every 
APC with the costs of the associated device category C-codes that were 
billed with the APC packaged into the median. Comparing the median APC 
cost without device packaging to the median APC cost, including device 
packaging, enabled us to determine the percentage of the median APC 
cost that is attributable to the associated pass-through devices. By 
applying those percentages to the APC payment rates, we determined the 
applicable amount to be deducted from the pass-through payment, the 
''offset'' amount. We created an offset list comprised of any APC for 
which the device cost was at least 1 percent of the APC's cost.
    The offset list that we published for CY 2002 through CY 2004 was a 
list of offset amounts associated with those APCs with identified 
offset amounts developed using the methodology described above. As a 
rule, we do not

[[Page 49579]]

know in advance which procedures residing in certain APCs may be billed 
with new device categories. Therefore, an offset amount is applied only 
when a new device category is billed with a HCPCS procedure code that 
is assigned to an APC appearing on the offset list.
    For CY 2004, we modified our policy for applying offsets to device 
pass-through payments. Specifically, we indicated that we would apply 
an offset to a new device category only when we could determine that an 
APC contains costs associated with the device. We continued our 
existing methodology for determining the offset amount, described 
earlier. We were able to use this methodology to establish the device 
offset amounts for CY 2004 because providers reported device codes (C-
codes) on the CY 2002 claims used for the CY 2004 OPPS update. For the 
CY 2005 update to the OPPS, our data consisted of CY 2003 claims that 
did not contain device codes and, therefore, for CY 2005, we utilized 
the device percentages as developed for CY 2004. In the CY 2004 OPPS 
update, we reviewed the device categories eligible for continuing pass-
through payment in CY 2004 to determine whether the costs associated 
with the device categories are packaged into the existing APCs. Based 
on our review of the data for the device categories existing in CY 
2004, we determined that there were no close or identifiable costs 
associated with the devices relating to the respective APCs that are 
normally billed with them. Therefore, for those device categories, we 
set the offset amount to $0 for CY 2004. We continued this policy of 
setting the offset amount to $0 for the device categories that 
continued to receive pass-through payment in CY 2005.
    For the CY 2006 OPPS update, CY 2004 hospital claims were available 
for analysis. Hospitals billed device C-codes in CY 2004 on a voluntary 
basis. We reviewed our CY 2004 data and found that the numbers of 
claims for services in many of the APCs for which we calculated device 
percentages using CY 2004 data were quite small. We also found that 
many of these APCs already had relatively few single claims available 
for median calculations compared with the total bill frequencies 
because of our inability to use many multiple bills in establishing 
median costs for all APCs. In addition, we found that our claims 
demonstrated that relatively few hospitals specifically coded for 
devices utilized in CY 2004. Thus, we were not confident that CY 2004 
claims reporting C-codes represented the typical costs of all hospitals 
providing the services. Therefore, we did not use CY 2004 claims with 
device coding to calculate CY 2006 device offset amounts. In addition, 
we did not use the CY 2005 methodology, for which we utilized the 
device percentages as developed for CY 2004. Two years had passed since 
we developed the device offsets for CY 2004, and the device offsets 
originally calculated from CY 2002 hospitals' claims data may either 
have overestimated or underestimated the contributions of device costs 
to total procedural costs in the outpatient hospital environment of CY 
2004. In addition, a number of the APCs on the CY 2004 and CY 2005 
device offset percentage lists were either no longer in existence or 
were so significantly reconfigured that the past device offsets likely 
did not apply.
    For CY 2006, we reviewed the single new device category established 
thus far, C1820, to determine whether device costs associated with the 
new category are packaged into the existing APC structure. Under our 
established policy, if we determine that the device costs associated 
with the new category are closely identifiable to device costs packaged 
into existing APCs, we set the offset amount for the new category to an 
amount greater than $0. Our review of the service indicated that the 
median costs for the applicable APC 0222 (Implantation of Neurological 
Device) contained costs for neurostimulators similar to the costs of 
the new device category C1820. Therefore, we determined that a device 
offset would be appropriate. We announced an offset amount for that 
category in Program Transmittal No. 804, dated January 3, 2006.
    For CY 2006, we are using available partial year CY 2005 hospital 
claims data to calculate device percentages and potential offsets for 
CY 2006 applications for new device categories. Effective January 1, 
2005, we require hospitals to report device C-codes and their costs 
when hospitals bill for services that utilize devices described by the 
existing C-codes. In addition, during CY 2005, we implemented device 
edits for many services that require devices and for which appropriate 
device C-codes exist. Therefore, we expected that the number of claims 
that include device codes and their respective costs to be much more 
robust and representative for CY 2005 than for CY 2004. We believe that 
use of the most current claims data to establish offset amounts when 
they are needed to ensure appropriate payment is consistent with our 
stated policy; therefore, we are proposing to continue to do so for the 
CY 2007 OPPS. Specifically, if we create a new device category for 
payment in CY 2007, to calculate potential offsets we are proposing to 
examine the most current available claims data, including device costs, 
to determine whether device costs associated with the new category are 
already packaged into the existing APC structure, as indicated earlier. 
If we conclude that some related device costs are packaged into 
existing APCs, we are proposing to use the methodology described 
earlier and first used for the CY 2003 OPPS to determine an appropriate 
device offset percentage for those APCs with which the new category 
would be reported.
    We did not publish a list of APCs with device percentages as a 
transitional policy for CY 2006 because of the previously discussed 
limitations of the CY 2004 OPPS data with respect to device costs 
associated with procedures. We stated in the CY 2006 final rule with 
comment period (70 FR 68628) that we expected to reexamine our previous 
methodology for calculating the device percentages and offset amounts 
for the CY 2007 OPPS update, which would be based on CY 2005 hospital 
claims data where device C-code reporting is required.
b. Proposed Policy for CY 2007
    For CY 2007, we are proposing to continue to review each new device 
category on a case-by-case basis as we have done in CY 2004, CY 2005, 
and CY 2006, to determine whether device costs associated with the new 
category are packaged into the existing APC structure. If we determine 
that, for any new device category, no device costs associated with the 
new category are packaged into existing APCs, we are proposing to 
continue our current policy of setting the offset amount for the new 
category to $0 for CY 2007. There is currently one new device category 
that would continue for pass-through payment in CY 2007. This category, 
described by HCPCS code C1820, currently has an offset amount of 
$8,647.81, which is applied to APC 0222. We are proposing to update 
this offset for CY 2007 based on the full year of claims data for CY 
2005, the claims data year for our CY 2007 rate update. We are 
proposing an offset amount for C1820 of 78.1 percent of the proposed CY 
2007 payment rate for APC 0222 based on the CY 2005 data used to 
calculate the proposed payment amount in this proposed rule. (See 
Addendum A of this proposed rule for a listing of the proposed CY 2007 
APC payment rates.)
    We are proposing to continue our existing policy to establish new

[[Page 49580]]

categories in any quarter when we determine that the criteria for 
granting pass-through status for a device category are met. If we 
create a new device category and determine that our data contain a 
sufficient number of claims with identifiable costs associated with the 
new category of devices in any APC, we are proposing to adjust the APC 
payment if the offset amount is greater than $0. If we determine that a 
device offset greater than $0 is appropriate for any new category that 
we create, we are proposing to announce the offset amount in the 
program transmittal that announces the new category.
    In summary, for CY 2007, we are proposing to use CY 2005 hospital 
claims data to calculate device percentages and potential offsets for 
CY 2007 applications for new device categories. We are proposing to 
publish, through program transmittals, any new or updated offsets that 
we calculate for CY 2007, corresponding to newly created categories or 
existing categories, respectively.

V. Proposed OPPS Payment Changes for Drugs, Biologicals, and 
Radiopharmaceuticals

A. Proposed Transitional Pass-Through Payment for Additional Costs of 
Drugs and Biologicals

    (If you choose to comment on issues in this section, please include 
the caption ``Pass-Through Drugs'' at the beginning of your comment.)
1. Background
    Section 1833(t)(6) of the Act provides for temporary additional 
payments or ``transitional pass-through payments'' for certain drugs 
and biological agents. As originally enacted by the Medicare, Medicaid, 
and SCHIP Balanced Budget Refinement Act (BBRA) of 1999 (Pub. L. 106-
113), this provision requires the Secretary to make additional payments 
to hospitals for current orphan drugs, as designated under section 526 
of the Federal Food, Drug, and Cosmetic Act (Pub. L. 107-186); current 
drugs and biological agents and brachytherapy sources used for the 
treatment of cancer; and current radiopharmaceutical drugs and 
biological products. For those drugs and biological agents referred to 
as ``current,'' the transitional pass-through payment began on the 
first date the hospital OPPS was implemented (before enactment of the 
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act 
BIPA of 2000 (Pub. L. 106-554), on December 21, 2000).
    Transitional pass-through payments are also required for certain 
``new'' drugs and biological agents that were not being paid for as a 
hospital outpatient department service as of December 31, 1996, and 
whose cost is ``not insignificant'' in relation to the OPPS payments 
for the procedures or services associated with the new drug or 
biological. Under the statute, transitional pass-through payments can 
be made for at least 2 years but not more than 3 years. In Addenda A 
and B of this proposed rule, proposed CY 2007 pass-through drugs and 
biological agents are identified by status indicator ``G.''
    The process to apply for transitional pass-through payment for 
eligible drugs and biological agents can be found on our CMS Web site: 
http://www.cms.hhs.gov. If we revise the application instructions in 

any way, we will post the revisions on our Web site and submit the 
changes to the Office of Management and Budget (OMB) for approval, as 
required under the Paperwork Reduction Act (PRA). Notification of new 
drugs and biologicals application processes is generally posted on the 
OPPS Web site at: http://www.cms.hhs.gov/providers/hopps.

2. Expiration in CY 2006 of Pass-Through Status for Drugs and 
Biologicals
    Section 1833(t)(6)(C)(i) of the Act specifies that the duration of 
transitional pass-through payments for drugs and biologicals must be no 
less than 2 years and no longer than 3 years. The 12 drugs and 
biologicals listed in Table 23, whose pass-through status will expire 
on December 31, 2006, meet that criterion. For all drugs and 
biologicals with pass-through status expiring on December 31, 2006, 
that are currently assigned temporary C-codes, if there is a permanent 
HCPCS code available for CY 2007 that describes the product, then we 
are proposing to delete the C-code and use the permanent HCPCS code for 
purposes of OPPS billing and payment for the product in CY 2007. Based 
on our review of the existing permanent HCPCS codes available at the 
time of this proposed rule, we have determined that HCPCS code J7344 
(Nonmetabolic active tissue) appropriately describes the product 
reported under HCPCS code C9221 in the CY 2006 OPPS; therefore, we 
propose to delete C9221 and pay for this product using J7344 in CY 
2007. The coding changes for the other products will depend on what the 
final HCPCS codes are for CY 2007, which will be included in the CY 
2007 OPPS final rule. We specifically request comments on this proposed 
policy for CY 2007.

Table 23.--Proposed List of Drugs and Biologicals for Which Pass-Through
                    Status Expires December 31, 2006
------------------------------------------------------------------------
        HCPCS                   APC                Short descriptor
------------------------------------------------------------------------
C9220................  9220.................  Sodium hyaluronate.
C9221................  9221.................  Graftjacket Reg Matrix.
C9222................  9222.................  Graftjacket Sft Tis.
J0128................  9216.................  Abarelix injection.
J0878................  9124.................  Daptomycin injection.
J2357................  9300.................  Omalizumab injection.
J2783................  0738.................  Rasburicase.
J2794................  9125.................  Risperidone, long acting.
J7518................  9219.................  Mycophenolic acid.
J9035................  9214.................  Bevacizumab injection.
J9055................  9215.................  Cetuximab injection.
J9305................  9213.................  Pemetrexed injection.
------------------------------------------------------------------------

3. Drugs and Biologicals With Proposed Pass-Through Status in CY 2007
    We are proposing to continue pass-through status in CY 2007 for 
nine drugs and biologicals. These items, which are listed in Table 24 
below, were given pass-through status as of April 1, 2006. The APCs and 
HCPCS codes for drugs and biologicals that we are proposing to continue 
with pass-through status in CY 2007 are assigned status indicator ``G'' 
in Addenda A and B of this proposed rule.
    Section 1833(t)(6)(D)(i) of the Act sets the payment rate for pass-
through eligible drugs (assuming that no pro rata reduction in pass-
through payment is necessary) as the amount determined under section 
1842(o) of the Act. We note that this section of the Act also states 
that if a drug or biological is covered under a competitive acquisition 
contract under section 1847B of the Act, the payment rate is equal to 
the average price for the drug or biological for all competitive 
acquisition areas and the year established as calculated and adjusted 
by the Secretary.
    Section 1847A of the Act, as added by section 303(c) of Pub. L. 
108-173, establishes the use of the average sales price (ASP) 
methodology as the basis for payment of drugs and biologicals described 
in section 1842(o)(1)(C) of the Act and furnished on or after January 
1, 2005. This payment methodology is set forth in Sec.  419.64 of the 
regulations. Section 1847B of the Act, as added by section 303(d) of 
Pub. L. 108-173, establishes the payment methodology for drugs and 
biologicals under the competitive acquisition program. The competitive 
acquisition program was implemented as of July 1, 2006. The list of 
drugs and biologicals covered under this program can be found on http://www.cms.hhs.gov/CompetitiveAcquisforBios
, along with


[[Page 49581]]

their payment rates and information on the program's methodology.
    Section 1833(t)(6)(D)(i) of the Act sets the payment rate for pass-
through eligible drugs as the amount determined under section 1842(o) 
of the Act, or if a drug or biological is covered under a competitive 
acquisition contract under section 1847B of the Act, the payment rate 
is equal to the average price for the drug or biological for all 
competitive acquisition areas and the year established as calculated 
and adjusted by the Secretary. For CY 2007, under the OPPS we are 
proposing payment for drugs and biologicals with pass-through status 
that will also be covered under the competitive acquisition program to 
be based on the competitive acquisition program methodology. Similar to 
the payment policy established for pass-through drugs and biologicals 
in CY 2006, we are proposing to pay under the OPPS for all other drugs 
and biologicals with pass-through status in CY 2007 consistent with the 
provisions of section 1842(o) of the Act, as amended by section 621 of 
Pub. L. 108-173, at a rate that is equivalent to the payment these 
drugs and biologicals would receive in the physician office setting.
    Table 24 lists the drugs and biologicals for which we are proposing 
that pass-through status continue in CY 2007. Of these nine drugs and 
biologicals, only HCPCS codes J2503 (Pegaptanib sodium injection) and 
J9264 (Paclitaxel injection) are covered under the competitive 
acquisition program at the time of the development of this proposed 
rule. Therefore, in CY 2007, we are proposing to set payment for HCPCS 
codes J2503 and J9264 at the amounts determined under the competitive 
acquisition program, which will be a rate slightly different than the 
rate determined under the ASP methodology. Payment for all other drugs 
and biologicals would be equivalent to the payment these drugs and 
biologicals would receive in the physician office setting in CY 2007, 
where payment will be determined by the methodology described in Sec.  
419.904 and generally be equal to ASP+6 percent. In accordance with the 
ASP methodology, in the absence of ASP data, we are continuing the 
policy we implemented during CYs 2005 and 2006 of using the wholesale 
acquisition cost (WAC) for the product to establish the initial payment 
rate. We note, however, that if the WAC is also unavailable, then we 
would make payment at 95 percent of the product's most recent AWP. We 
adopted this interim payment methodology in order to be consistent with 
how we pay for new drugs, biologicals, and radiopharmaceuticals without 
HCPCS codes, as discussed in the CY 2006 OPPS final rule with comment 
period (70 FR 68669). We further note that with respect to items for 
which we currently do not have ASP data, once their ASP data become 
available in later quarter submissions, their payment rates under OPPS 
will be adjusted so that the rates are based on the ASP methodology and 
set to ASP+6 percent.
    Currently, there are no radiopharmaceuticals that would have pass-
through status in CY 2007. In the event that a new radiopharmaceutical 
agent receives pass-through status in CY 2007, we propose to base its 
payment on the WAC for the product as ASP data for radiopharmaceuticals 
are not available. We note, however, that if the WAC is also 
unavailable, then we would calculate payment for the 
radiopharmaceutical at 95 percent of its most recent AWP. We are 
proposing to adopt this interim payment methodology in order to be 
consistent with how we pay for new drugs, biologicals, and 
radiopharmaceuticals without HCPCS codes, as discussed in the CY 2006 
OPPS final rule with comment period (70 FR 68669).
    Section 1833(t)(6)(D)(i) of the Act also sets the amount of 
additional payment for pass-through eligible drugs and biologicals (the 
pass-through payment amount). The pass-through payment amount is the 
difference between the amount authorized under section 1842(o) of the 
Act (or under section 1847B of the Act, if the drug or biological is 
covered under a competitive acquisition contract), and the portion of 
the otherwise applicable fee schedule amount (that is, the APC payment 
rate) that the Secretary determines is associated with the drug or 
biological.
    We discuss in section V.B.3.b. of the preamble that we are 
proposing to make separate payment in CY 2007 for new drugs and 
biologicals with a HCPCS code, consistent with the provisions of 
section 1842(o) of the Act at a rate that is equivalent to the payment 
they would receive in a physician office setting (or under section 
1847B of the Act, if the drug or biological is covered under a 
competitive acquisition contract), whether or not we have received a 
pass-through application for the item. Accordingly, in CY 2007 the 
pass-through payment amount would equal zero for those new drugs and 
biologicals that we determine have pass-through status. That is, when 
we subtract the amount to be paid for pass-through drugs and 
biologicals under section 1842(o) of the Act (or section 1847B of the 
Act, if the drug or biological is covered under a competitive 
acquisition contract), from the portion of the otherwise applicable fee 
schedule amount or the APC payment rate associated with the drug or 
biological that would be the amount paid for drugs and biologicals 
under section 1842(o) of the Act (or section 1847B of the Act, if the 
drug or biological is covered under a competitive acquisition 
contract), the resulting difference is equal to zero.
    We are proposing to use payment rates based on the ASP data from 
the fourth quarter of CY 2005 for budget neutrality estimates, impact 
analyses, and to complete Addenda A and B of this proposed rule because 
these are the most recent data available to us at this time. These 
payment rates are also the basis for drug payments in the physician 
office setting effective April 1, 2006. To be consistent with the ASP-
based payments that would be made when these drugs and biologicals are 
furnished in physician offices, we are proposing to make any 
appropriate adjustments to the amounts shown in Addenda A and B of this 
proposed rule when we publish our CY 2007 OPPS final rule and also on a 
quarterly basis on our Web site during CY 2007 if later quarter ASP 
submissions (or more recent WACs or AWPs) indicate that adjustments to 
the payment rates for these pass-through drugs and biologicals are 
necessary. The payment rate for a radiopharmaceutical with pass-through 
status would also be adjusted accordingly. We also are proposing to 
make appropriate adjustments to the payment rates for these drugs and 
biologicals in the event that they become covered under the competitive 
acquisition program in the future. For drugs and biologicals that are 
currently covered under the competitive acquisition program, we are 
proposing to use the payment rates calculated under this program that 
are in effect as of July 1, 2006. We are proposing to update these 
payment rates if the rates change in the future.
    Table 24 lists the drugs and biologicals for which we are proposing 
that pass-through status continue in CY 2007. We assigned pass-through 
status to these drugs and biologicals as of April 1, 2006. We also have 
included in Addenda A and B of this proposed rule, the proposed CY 2007 
APC payment rates for all pass-through drugs and biologicals, based on 
ASP data from the fourth quarter of CY 2005 (or if applicable, payment 
rates calculated under the competitive acquisition program) as 
described above.

[[Page 49582]]



   Table 24.--Proposed List of Drugs and Biologicals With Pass-Through
                            Status in CY 2007
------------------------------------------------------------------------
        HCPCS                   APC                Short descriptor
------------------------------------------------------------------------
C9225................  9225.................  Fluocinolone acetonide.
C9227................  9227.................  Injection, micafungin
                                               sodium.
C9228................  9228.................  Injection, tigecycline.
J2278................  1694.................  Ziconotide injection.
J2503................  1697.................  Pegaptanib sodium
                                               injection.
J8501................  0868.................  Oral aprepitant.
J9027................  1710.................  Clofarabine injection.
J9264................  1712.................  Paclitaxel injection.
Q4079................  9126.................  Natalizumab injection.
------------------------------------------------------------------------

B. Proposed Payment for Drugs, Biologicals, and Radiopharmaceuticals 
Without Pass-Through Status

    (If you choose to comment on issues in this section, please include 
the caption ``OPPS: Nonpass-Through Drugs, Biologicals, and 
Radiopharmaceuticals'' at the beginning of your comment.)
1. Background
    Under the CY 2006 OPPS, we currently pay for drugs, biologicals, 
and radiopharmaceuticals that do not have pass-through status in one of 
two ways: packaged payment within the payment for the associated 
service or separate payment (individual APCs). We explained in the 
April 7, 2000 OPPS final rule with comment period (65 FR 18450) that we 
generally package the cost of drugs and radiopharmaceuticals into the 
APC payment rate for the procedure or treatment with which the products 
are usually furnished. Hospitals do not receive separate payment from 
Medicare for packaged items and supplies, and hospitals may not bill 
beneficiaries separately for any packaged items and supplies whose 
costs are recognized and paid within the national OPPS payment rate for 
the associated procedure or service. (Program Memorandum Transmittal A-
01-133, issued on November 20, 2001, explains in greater detail the 
rules regarding separate payment for packaged services.)
    Packaging costs into a single aggregate payment for a service, 
procedure, or episode of care is a fundamental principle that 
distinguishes a prospective payment system from a fee schedule. In 
general, packaging the costs of items and services into the payment for 
the primary procedure or service with which they are associated 
encourages hospital efficiencies and also enables hospitals to manage 
their resources with maximum flexibility. Notwithstanding our 
commitment to package as many costs as possible, we are aware that 
packaging payments for certain drugs, biologicals, and 
radiopharmaceuticals, especially those that are particularly expensive 
or rarely used, might result in insufficient payments to hospitals, 
which could adversely affect beneficiary access to medically necessary 
services.
    Section 1833(t)(16)(B) of the Act, as added by section 621(a)(2) of 
Pub. L. 108-173, requires that the threshold for establishing separate 
APCs for drugs and biologicals be set at $50 per administration for CYs 
2005 and 2006. However, this requirement for establishing the packaging 
threshold will expire at the end of CY 2006. For CY 2006, we finalized 
our policy to continue paying separately for drugs, biologicals, and 
radiopharmaceuticals whose per day cost exceeds $50 and packaging the 
costs of drugs, biologicals, and radiopharmaceuticals whose per day 
cost is less than $50 into the procedures with which they are billed. 
For CY 2006, we also continued an exception policy to our packaging 
rule for one particular class of drugs, the oral and injectable 5HT3 
forms of anti-emetic treatments (70 FR 68635 through 68638).
2. Proposed Criteria for Packaging Payment for Drugs, Biologicals, and 
Radiopharmaceuticals
    During the March 2006 meeting of the APC Panel, the Panel 
recommended that CMS maintain the $50 packaging threshold or if the 
threshold is reevaluated, that CMS provide the Panel with data that 
indicate the costs of packaged drugs that are incorporated into drug 
administration payment rates.
    As indicated above, in accordance with section 1833(t)(16)(B) of 
the Act, the threshold for establishing separate APCs for drugs and 
biologicals was set to $50 per administration during CYs 2005 and 2006. 
Because this packaging threshold will expire at the end of CY 2006, we 
evaluated four options for packaging levels so that we could determine 
what the appropriate packaging threshold proposal for drugs, 
biologicals, and radiopharmaceuticals would be for the CY 2007 OPPS 
update.
    One of the packaging options we considered for the CY 2007 OPPS 
update was to pay separately for all drugs, biologicals, and 
radiopharmaceuticals with a HCPCS code. This would be a straightforward 
policy that would speed the creation of procedural APC medians. 
However, this policy would be inconsistent with OPPS packaging 
principles, reduce hospitals' incentives for economy and efficiency, 
and increase hospitals' administrative burden related to separate 
billing for more drugs, biologicals, and radiopharmaceuticals.
    The second option we considered for CY 2007 was to increase the 
packaging threshold to a level much higher than the current $50 
threshold. This option would result in the packaging of more drugs, 
biologicals, and radiopharmaceuticals and would be more consistent with 
OPPS packaging principles. This option would also provide greater 
administrative simplicity for hospitals. However, implementation of 
this option might result, in some cases, in the drug administration 
payments being less than the cost of the packaged drugs. Relatively 
expensive drugs, biologicals, and radiopharmaceuticals could also be 
packaged under this option.
    The third packaging threshold option we evaluated was to maintain 
the packaging threshold at $50. We believe that this is a reasonable 
policy option that would provide stability to the payment system, as 
the packaging threshold has been set at $50 since CY 2004. This policy 
option would also be consistent with the APC Panel recommendation to 
maintain the packaging threshold at $50 in CY 2007; however, this 
policy would not take into account price inflation in determining the 
drug packaging threshold since the $50 threshold was initially 
established.
    Consequently, the fourth option we considered and are proposing for 
CY 2007 and subsequent years is to update the packaging threshold for 
inflation using an inflation adjustment factor based on the Producer 
Price Index (PPI) for prescription preparations. In order to update the 
packaging threshold for CY 2007 under this proposal, we used the four 
quarter moving average PPI levels for prescription preparations to 
trend the $50 threshold forward from the third quarter of CY 2005 (when 
the Pub. L. 108-173-mandated threshold became effective) to the third 
quarter of CY 2007. We are proposing that for each year beginning with 
CY 2007, we would adjust the packaging threshold by the PPI for 
prescription drugs, and the adjusted dollar amount would be rounded to 
the nearest $5 increment in order to determine the new threshold. The 
adjusted amount for CY 2007 was calculated to be $55.99, which we are 
rounding to $55. Therefore, for CY 2007, we are proposing to pay 
separately for drugs, biologicals, and radiopharmaceuticals whose per 
day cost exceeds $55 and packaging the costs of drugs, biologicals, and 
radiopharmaceuticals whose per day cost is less than or equal to $55 
into the procedures with which they are billed.

[[Page 49583]]

    This proposed policy is consistent with the principle employed in 
many health care payment policy areas (and many other areas of 
government policy) of acknowledging the real costs by using an 
inflation adjustment instead of static dollar values. We believe that 
our proposed policy is consistent with the APC Panel's recommendation 
because we would be maintaining the $50 threshold in terms of its real 
value during the calendar year in which it would be in effect. Also, in 
the absence of a mechanism to update the threshold, we believe that 
current relatively inexpensive drugs would begin to receive separate 
payment over time. The PPI for prescription preparations reflects price 
changes at the wholesale or manufacturer stage. Because OPPS payment 
rates for drugs and biologicals are generally based on average sales 
price (ASP) data that are reported by their manufacturers, we believe 
that the PPI for prescription preparations would be an appropriate 
price index to use to update the packaging threshold for CY 2007 and 
beyond.
    For CY 2007, we are also proposing to continue our policy of 
exempting the oral and injectable 5HT3 anti-emetic products from our 
packaging rule (Table 25), thereby making separate payment for all of 
the 5HT3 anti-emetic products. As stated in the CY 2005 OPPS final rule 
with comment period (69 FR 65779 through 65780), chemotherapy is very 
difficult for many patients to tolerate, as the side effects are often 
debilitating. In order for Medicare beneficiaries to achieve the 
maximum therapeutic benefit from chemotherapy and other therapies with 
side effects of nausea and vomiting, anti-emetic use is often an 
integral part of the treatment regimen. We believe that we should 
continue to ensure that Medicare payment rules do not impede a 
beneficiary's access to the particular anti-emetic that is most 
effective for him or her as determined by the beneficiary and his or 
her physician. We solicit comments on these packaging proposals.

 Table 25.--Proposed Anti-Emetics To Exempt From Proposed $55 Packaging
                               Requirement
------------------------------------------------------------------------
            HCPCS code                        Short description
------------------------------------------------------------------------
J1260.............................  Dolasetron mesylate.
J1626.............................  Granisetron HCl injection.
J2405.............................  Ondansetron HCl injection.
J2469.............................  Palonosetron HCl.
Q0166.............................  Granisetron HCl 1 mg oral.
Q0179.............................  Ondansetron HCl 8 mg oral.
Q0180.............................  Dolasetron mesylate oral.
------------------------------------------------------------------------

    To determine their CY 2007 proposed packaging status, we calculated 
the per day cost of all drugs, biologicals, and radiopharmaceuticals 
that had a HCPCS code in CY 2005 and were paid (via packaged or 
separate payment) under the OPPS using claims data from January 1, 
2005, to December 31, 2005. In CY 2005, multisource drugs and 
radiopharmaceuticals had two HCPCS codes that distinguished the 
innovator multisource (brand) drug or radiopharmaceutical from the 
noninnovator multisource (generic) drug or radiopharmaceutical. We 
aggregated claims for both the brand and generic HCPCS codes in our 
packaging analysis of these multisource products. In order to calculate 
the per day cost for drugs, biologicals, and radiopharmaceuticals to 
determine their packaging status in CY 2007, we are proposing to use 
the methodology that was described in detail in the CY 2006 OPPS 
proposed rule (70 FR 42723 through 42724) and finalized in the CY 2006 
OPPS final rule with comment period (70 FR 68636 through 68638). 
However, in our calculation of per day costs for this proposed rule for 
the CY 2007 OPPS update, we used the payment rate for each drug and 
biological at its ASP+5 percent which was based on manufacturer-
submitted ASP data from the fourth quarter of CY 2005. The ASP data 
from this period were also the basis for determining payments for drugs 
and biologicals in the physician office setting, effective April 1, 
2006. The rationale for using ASP+5 percent as the payment for drugs 
and biologicals is described in section V.B.3.a.2. of this preamble. 
For items that did not have an ASP-based payment rate, we used their 
mean unit cost derived from the CY 2005 hospital claims data to 
determine their per day cost. We packaged the items with per day cost 
less than or equal to $55 and made items with per day cost greater than 
$55 separately payable. We are requesting comments on the methodology 
we are proposing to use to determine the per day cost of drugs, 
biologicals, and radiopharmaceuticals under the CY 2007 OPPS update.
    Our policy during previous cycles of the OPPS has been to use 
updated data for the final rules. For the CY 2007 OPPS final rule, we 
are proposing to use the ASP data from the first quarter of CY 2006, 
which would be the basis for calculating payment rates for drugs and 
biologicals in the physician office setting using the ASP methodology 
effective July 1, 2006, along with updated hospital claims data from CY 
2005 to determine the final per day costs of drugs, biologicals, and 
radiopharmaceuticals and their packaging status in CY 2007. 
Subsequently, payment rates for CY 2007 separately payable drugs and 
biologicals will be updated to reflect applicable ASP-based rates 
effective in the physician office setting for services effective 
January 1, 2007.
    Because, for the CY 2007 OPPS final rule, we are proposing to use 
ASP data from the first quarter of CY 2006, which would be the basis 
for calculating payment rates for drugs and biologicals in the 
physician office setting using the ASP methodology, effective July 1, 
2006, along with updated hospital claims data from CY 2005 to determine 
the final per day costs of drugs, biologicals, and 
radiopharmaceuticals, the packaging status of these items using the 
updated data may be different from their packaging status determined 
based on the data we are using for this proposed rule. Under such 
circumstances, we are proposing to apply the following policies to 
these drugs, biologicals, and radiopharmaceuticals whose relationship 
to the $55 threshold changes based on the final updated data:
     Drugs, biologicals, and radiopharmaceuticals that were 
paid separately in CY 2006 (which are proposed for separate payment in 
CY 2007), and then have per day costs less than $55 based on the 
updated ASPs and hospital claims data that would be used for the CY 
2007 final rule with comment period, would continue to receive separate 
payment in CY 2007.
     Drugs, biologicals, and radiopharmaceuticals that were 
packaged in CY 2006, (which are proposed for separate payment in CY 
2007), and then have per day costs less than $55 based on the updated 
ASPs and hospital claims data that would be used for the CY 2007 final 
rule with comment period, would remain packaged in CY 2007.
     Drugs, biologicals, and radiopharmaceuticals for which we 
propose packaged payment in CY 2007 but then have per day costs greater 
than $55 based on the updated ASPs and hospital claims data that would 
be used for the CY 2007 final rule with comment period, would receive 
separate payment in CY 2007.
    We are requesting specific comments on these proposed policies for 
CY 2007.

[[Page 49584]]

3. Proposed Payment for Drugs, Biologicals, and Radiopharmaceuticals 
Without Pass-Through Status That Are Not Packaged
a. Proposed Payment for Specified Covered Outpatient Drugs
(1) Background
    Section 1833(t)(14) of the Act, as added by section 621(a)(1) of 
Public Law 108-173, requires special classification of certain 
separately paid radiopharmaceuticals, drugs, and biologicals and 
mandates specific payments for these items. Under section 
1833(t)(14)(B)(i) of the Act, a ``specified covered outpatient drug'' 
is a covered outpatient drug, as defined in section 1927(k)(2) of the 
Act, for which a separate APC exists and that either is a 
radiopharmaceutical agent or is a drug or biological for which payment 
was made on a pass-through basis on or before December 31, 2002.
    Under section 1833(t)(14)(B)(ii) of the Act, certain drugs and 
biologicals are designated as exceptions and are not included in the 
definition of ``specified covered outpatient drugs.'' These exceptions 
are--
      A drug or biological for which payment is first made on 
or after January 1, 2003, under the transitional pass-through payment 
provision in section 1833(t)(6) of the Act.
      A drug or biological for which a temporary HCPCS code has 
not been assigned.
      During CYs 2004 and 2005, an orphan drug (as designated 
by the Secretary).
    Section 1833(t)(14)(A)(iii) of the Act, as added by section 
621(a)(1) of Pub. L. 108 173, requires that payment for specified 
covered outpatient drugs in CY 2006 and subsequent years be equal to 
the average acquisition cost for the drug for that year as determined 
by the Secretary subject to any adjustment for overhead costs and 
taking into account the hospital acquisition cost survey data collected 
by the Government Accountability Office (GAO) in CYs 2004 and 2005. If 
hospital acquisition cost data are not available, the law requires that 
payment be equal to payment rates established under the methodology 
described in section 1842(o), section 1847A, or section 1847B of the 
Act as calculated and adjusted by the Secretary as necessary.
    For CY 2006, we adopted a policy of paying for the acquisition and 
overhead costs of separately paid drugs and biologicals at a combined 
rate of ASP+6 percent. To calculate the ASP+6 percent payment rate, we 
evaluated the three data sources that were available to us for setting 
the CY 2006 payment rates for drugs and biologicals. As described in 
the CY 2006 OPPS final rule with comment period (70 FR 68639 through 
68644), these data sources were the GAO reported average purchase 
prices for 55 specified covered outpatient drug categories for the 
period July 1, 2003 to June 30, 2004 collected via a survey of 1,400 
acute care Medicare-certified hospitals; ASP data; and mean costs 
derived from CY 2004 hospital claims data used in developing the CY 
2006 final rule with comment period. For the CY 2006 final rule with 
comment period, we used ASP data from the second quarter of CY 2005, 
which were used to set payment rates for drugs and biologicals in the 
physician office setting effective October 1, 2005. We also used 
updated claims data, reflecting all of the hospital claims data from CY 
2004 and updated CCRs.
    In our data analysis for the CY 2006 OPPS final rule with comment 
period, we compared the payment rates for drugs and biologicals using 
data from all three sources described above. We estimated aggregate 
expenditures for all drugs and biologicals (excluding 
radiopharmaceuticals) that would be separately payable in CY 2006 and 
for the 55 drugs and biologicals reported by the GAO using mean costs 
from the claims data, the GAO mean purchase prices, and the ASP-based 
payment amounts (ASP+6 percent in most cases), and then calculated the 
equivalent average ASP-based payment rate under each of the three 
payment methodologies. The results based on updated ASP and claims data 
were published in Table 24 of the CY 2006 OPPS final rule with comment 
period. For a full discussion of our reasons for using these data, 
refer to section V.B.3.a. of the CY 2006 OPPS final rule with comment 
period (70 FR 68639 through 68644).
    As noted in the CY 2006 OPPS final rule with comment period, 
findings from a MedPAC survey of hospital charging practices indicated 
that hospitals set charges for drugs, biologicals, and 
radiopharmaceuticals high enough to reflect their pharmacy handling 
costs as well as their acquisition costs. Therefore, we believe the 
MedPAC survey indicated that payment for drugs and biologicals and 
pharmacy overhead at a combined ASP+6 percent rate would serve as the 
best proxy for the combined acquisition and overhead costs of each of 
these products.
(2) Proposed Payment Policy for CY 2007
    The provision in section 1833(t)(14)(A)(iii) of the Act, as 
described above, continues to be applicable to determining payments for 
specified covered outpatient drugs for CY 2007. Similar to CY 2006, 
this provision requires that in CY 2007 payment for specified covered 
outpatient drugs be equal to the average acquisition cost for the drug 
for that year as determined by the Secretary subject to any adjustment 
for overhead costs and taking into account the hospital acquisition 
cost survey data collected by the Government Accountability Office 
(GAO) in CYs 2004 and 2005. If hospital acquisition cost data are not 
available, the law requires that payment be equal to payment rates 
established under the methodology described in section 1842(o), section 
1847A, or section 1847B of the Act as calculated and adjusted by the 
Secretary as necessary. Additionally, section 1833(t)(14)(E)(ii) 
authorizes the Secretary to adjust APC weights for specified covered 
outpatient drugs to take into account the MedPAC report relating to 
overhead and related expenses, such as pharmacy services and handling 
costs.
    For the CY 2007 proposed rule, we evaluated two data sources that 
we have available to us for setting the CY 2007 payment rates for drugs 
and biologicals. The first source of drug pricing information that we 
have is the ASP data from the fourth quarter of CY 2005, which were 
used to set payment rates for drugs and biologicals in the physician 
office setting effective April 1, 2006. We have ASP-based prices for 
approximately 500 drugs and biologicals (including contrast agents) 
payable under the OPPS; however, we currently do not have any ASP data 
on radiopharmaceuticals. Payments for most of the drugs and biologicals 
paid in the physician office setting are based on ASP+6 percent, and 
payments for items with no reported ASP are based on wholesale 
acquisition cost (WAC).
    The second source of cost data that we have for drugs, biologicals, 
and radiopharmaceuticals are the mean and median costs derived from the 
CY 2005 hospital claims data. As section 1833(t)(14)(A)(iii) of the Act 
clearly specifies that payment for specified covered outpatient drugs 
in CY 2007 be equal to the ``average'' acquisition cost for the drug, 
we limited our analysis to the mean costs of drugs determined using the 
hospital claims data, instead of using median costs.

[[Page 49585]]

    In our data analysis, we compared the payment rates for drugs and 
biologicals using data from both sources described above. We estimated 
aggregate expenditures for all drugs and biologicals (excluding 
radiopharmaceuticals) that would be separately payable in CY 2007 using 
mean costs from the hospital claims data and the ASP-based payment 
amounts (ASP+6 percent in most cases), and calculated the equivalent 
average ASP-based payment rate under both payment methodologies.
    The results of our data analysis indicate that using mean unit cost 
to set the payment rates for the drugs and biologicals that would be 
separately payable in CY 2007 would be equivalent to basing their 
payment rates, on average, at ASP+5 percent. As noted in the CY 2006 
proposed and final rules, findings from a MedPAC survey of hospital 
charging practices indicated that hospitals set charges for drugs, 
biologicals, and radiopharmaceuticals high enough to reflect their 
pharmacy handling costs as well as their acquisition costs. Therefore, 
the mean costs calculated using charges from hospital claims data 
converted to costs are representative of hospital acquisition costs for 
these products, as well as their related pharmacy overhead costs. Our 
calculations indicate that using mean unit costs to set the payment 
rates for all separately payable drugs and biologicals would be 
equivalent to basing their payment rates on the ASP+5 percent, on 
average. Because pharmacy overhead costs are already built into the 
charges for drugs, biologicals, and radiopharmaceuticals, our current 
data therefore indicate that payment for drugs and biologicals and 
pharmacy overhead at a combined ASP+5 percent rate would serve as the 
best proxy for the combined acquisition and overhead costs of each of 
these products. Therefore, for CY 2007, we are proposing a policy of 
paying for the acquisition and overhead costs of separately paid drugs 
and biologicals at a combined rate of ASP+5 percent.
    In its final report on the hospital acquisition cost survey of 
specified covered outpatient drugs titled ``Medicare Hospital 
Pharmaceuticals: Survey Shows Price Variation and Highlights Data 
Collection Lessons and Outpatient Rate-setting Challenges for CMS'', 
the GAO recommended that Secretary validate, on an occasional basis, 
manufacturers' reported drug ASPs as a measure of hospitals' 
acquisition costs using a survey of hospitals or other method that CMS 
determines to be similarly accurate and efficient. As we indicated in 
our written comments to the GAO on its draft report, we will continue 
to consider the best approach for setting payment rates for drugs and 
biologicals in light of this recommendation. We also indicated that we 
will continue to analyze the adequacy of ASP-based pricing in light of 
our hospital claims data, which for this CY 2007 OPPS proposed rule 
indicates that ASP+5 percent would be the best available proxy for 
hospitals' average acquisition and handling costs of drugs and 
biologicals in CY 2007.
    We note that ASP data are unavailable for some drugs and 
biologicals. For these few drugs and biologicals, we are proposing to 
use the mean costs from the CY 2005 hospital claims data to determine 
their packaging status for ratesetting. Until we receive ASP data for 
these items, payment will be based on their mean cost calculated from 
CY 2005 hospital claims data. The payment rates for separately payable 
drugs and biologicals shown in Addenda A and B to this proposed rule 
represent payments for their acquisition and overhead costs.
    Our proposal uses payment rates based on ASP data from the fourth 
quarter of 2005 because these are the most recent numbers available to 
us at this time. To be consistent with the ASP data that would be used 
to determine payments for these drugs and biologicals when furnished in 
physician offices, we propose to make any appropriate adjustments to 
the amounts shown in Addenda A and B to this proposed rule for those 
items on a quarterly basis as more recent ASP data become available and 
post the payment rate changes on our Web site during each quarter of CY 
2007. We note that we would determine the packaging status of each drug 
or biological only once during the year during the update process; 
however, for the separately payable drugs and biologicals, we would 
update their ASP-based payment rates on a quarterly basis.
    During the March 2006 meeting of the APC Panel, the Panel 
recommended that CMS examine pharmacy overhead costs issues and work 
with appropriate associations to study how to measure pharmacy overhead 
costs. The Panel also recommended that CMS solicit feedback on how 
pharmacy overhead costs should be reimbursed in the future.
    In response to the APC Panel recommendations, we will continue to 
work on issues related to pharmacy overhead costs and request comments 
on other proposals that we can consider when establishing a future 
pharmacy overhead cost methodology. In addition, we note that we 
routinely accept requests from interested organizations to discuss 
their views about OPPS payment policy issues. We will consider the 
input of any individual or organization to the extent allowed by 
Federal law, including the Administrative Procedure Act (APA) and the 
Federal Advisory Committee Act (FACA). We establish the OPPS rates 
through regulations. We are required to consider the timely comments of 
interested organizations, establish the payment policies for the 
forthcoming year, and respond to the timely comments of all public 
commenters in the final rule in which we establish the payments for the 
forthcoming year.
    We are specifically requesting public comments on our proposal to 
pay for acquisition and overhead costs of drugs and biologicals under 
the OPPS at ASP+5 percent and the adequacy of the payment rates to 
account for actual acquisition and overhead costs incurred by hospitals 
for these items.
    In its October 31, 2005 letter of comment on proposed 2006 SCOD 
rates titled ``Comments on Proposed 2006 SCOD Rates,'' the GAO 
recommended that to better approximate hospitals' acquisition costs of 
SCODs the Secretary reconsider the level of proposed payment rates for 
drug SCODs, in relation to survey data on average purchase price, the 
role of rebates in determining acquisition costs, and the desirability 
of setting payment rates for SCODs at average acquisition costs. In the 
CY 2006 OPPS proposed rule (70 FR 42726), we noted that the comparison 
between the GAO purchase price data and the ASP data indicated that the 
GAO data on average were equivalent to ASP+3 percent. However, we also 
indicated that using mean unit cost from the CY 2004 hospital claims 
data to set the payment rates for the drugs and biologicals that would 
be separately payable in CY 2006 would be equivalent to basing their 
payment rates, on average, at ASP+8 percent. Therefore, we had proposed 
to establish payment for drugs and biologicals and their overhead costs 
at a combined rate of ASP+8 percent, where ASP+6 percent represented 
the acquisition cost of these items and 2 percent of ASP was for their 
overhead costs. For the CY 2006 OPPS final rule with comment period, 
where more recent ASP data, updated CCRs, and updated CY 2004 hospital 
claims data were available, we found that the comparison between the 
GAO purchase price data and the ASP data indicated that the GAO data on 
average were equivalent to ASP+4 percent, and using mean unit cost from 
hospital claims to set the payment rates for the drugs and

[[Page 49586]]

biologicals that would be separately payable in CY 2006 would be 
equivalent to basing their payment rates, on average, at ASP+6 percent. 
Because pharmacy overhead costs are already built into the charges for 
drugs, biologicals, and radiopharmaceuticals, we noted in the CY 2006 
OPPS final rule with comment period that our claims data indicated that 
payment for drugs and biologicals and their pharmacy overhead at a 
combined ASP+6 percent rate served as the best proxy for the combined 
acquisition and overhead costs of each of these products. For the CY 
2007 proposed rule, as indicated earlier in the preamble, we compared 
the CY 2005 hospital claims data with more recent ASP data and 
determined that using mean unit cost to set payment rates for 
separately payable drugs and biologicals in CY 2007 would be equivalent 
to basing their payment rates, on average, at ASP+5 percent. This is 
the policy we are proposing for CY 2007, and we believe that this 
payment level would serve as the best proxy for the combined 
acquisition and overhead costs of separately payable drugs and 
biologicals in CY 2007.
    In the CY 2006 OPPS final rule with comment period (70 FR 68661), 
we indicated that we will be paying for blood clotting factors at ASP+6 
percent during CY 2006 under the OPPS and providing payment for the 
furnishing fee that is also a part of the payment for blood clotting 
factors furnished in physician offices under Medicare Part B. This 
furnishing fee will be updated each calendar year based on the consumer 
price index, and we will update the amount appropriately each year 
under the OPPS based upon the final amount noted in the Medicare 
Physician Fee Schedule final rule. In CY 2006, the furnishing fee is 
$0.146 per unit. For the CY 2007 OPPS, we are proposing to make payment 
for blood clotting factors at ASP+5 percent along with continuing 
payment for the furnishing fee using the updated amount for CY 2007. 
The proposed CY 2007 regulations establishing the ASP methodology and 
the furnishing fee for blood clotting factors under Medicare Part B can 
be found in the CY 2007 Medicare Physician Fee Schedule proposed rule. 
The updated furnishing fee amount for CY 2007 under the OPPS will be 
announced in the CY 2007 OPPS final rule.
(3) CY 2007 Proposed Payment Policy for Radiopharmaceuticals
    Section 303(h) of Pub. L. 108-173 exempted radiopharmaceuticals 
from ASP pricing in the physician office setting where the fewer 
numbers (relative to the hospital outpatient setting) of 
radiopharmaceuticals are priced locally by Medicare contractors. 
Consequently, we do not have ASP data for radiopharmaceuticals. 
However, the law also requires us to make payments for specified 
covered outpatient drugs, including radiopharmaceuticals, equal to the 
average acquisition cost for the drug as determined by the Secretary 
and subject to any adjustment for overhead costs. We expect hospitals' 
different purchasing and preparation and handling practices for 
radiopharmaceuticals to be reflected in their charges. Therefore, for 
CY 2006, we calculated per day costs of radiopharmaceuticals using mean 
unit costs from the CY 2004 hospital claims data to determine the 
items' packaging status similar to the drugs and biologicals with no 
ASP data. For CY 2006, we implemented a 1-year temporary policy to pay 
for separately payable radiopharmaceuticals based on the hospital's 
charge for each radiopharmaceutical adjusted to cost. We clearly stated 
in our CY 2006 OPPS final rule with comment period that we did not 
intend to maintain the CY 2006 methodology permanently (70 FR 68656) 
and that we would actively seek other methodologies for setting 
payments for radiopharmaceuticals in CY 2007.
    During the March 2006 meeting of the APC Panel, the Panel 
recommended that CMS work with stakeholders to continue to develop a 
methodology to pay for radiopharmaceuticals. We note that we routinely 
accept requests from interested organizations to discuss their views 
about OPPS payment policy issues. We will consider the input of any 
individual or organization to the extent allowed by Federal law, 
including the Administrative Procedure Act (APA) and the Federal 
Advisory Committee Act (FACA). We establish OPPS rates through 
regulations. We are required to consider the timely comments of 
interested organizations, establish the payment policies for the 
forthcoming year, and respond to the timely comments of all public 
commenters in the final rule in which we establish the payments for the 
forthcoming year. We have considered comments and information from 
interested organizations in developing these policy options for CY 
2007.
    Over this past year, despite reviews of the literature and numerous 
discussions with interested individuals and organizations from the 
radiopharmaceutical industry, we have received no specific suggestions 
from hospitals or industry regarding alternative prospective payment 
methodologies for radiopharmaceuticals that could be used in place of 
our CY 2006 cost-based payment methodology. However, in its final 
report on the hospital acquisition cost survey of specified covered 
outpatient drugs, titled `` Medicare Hospital Pharmaceuticals: Survey 
Shows Price Variations and Highlights Data Collection Lesson and 
Outpatient Rate-setting Challenges for CMS,'' the GAO acknowledged that 
the distinctive nature of radiopharmaceuticals as compared with other 
drugs poses special challenges for collecting and interpreting hospital 
cost data. They discussed the challenges of balancing accuracy and 
efficiency in obtaining price data on radiopharmaceutical specified 
covered outpatient drugs. They concluded that the best option available 
to CMS, in terms of accuracy and efficiency, is for the Secretary to 
collect and use ready-to-use unit-dose prices paid by hospitals when 
available as the data source for setting and updating Medicare payment 
rates for radiopharmaceutical specified covered outpatient drugs. As we 
indicated in our written comments to the GAO on its draft report, we 
remain uncertain about whether a survey to collect unit-dose 
acquisition costs would be conducted as a survey of hospitals or 
manufacturers. We are also concerned about the level of expense and 
administrative burden that would be placed on the party reporting such 
information, based on the GAO's experience in surveying hospitals 
regarding radiopharmaceutical acquisition costs. The survey approach 
could lead to a very inefficient methodology for establishing payment 
rates. We also note that in conducting a survey to obtain ready-to-use 
unit-dose prices for radiopharmaceuticals, we would be able to collect 
this information for only a small number of radiopharmaceuticals that 
are purchased in unit-dose forms by hospitals; however, we believe that 
it is important to apply a consistent payment methodology to determine 
payments for all separately payable radiopharmaceuticals. Even though 
we are not proposing to adopt the GAO's recommendation for CY 2007, we 
will continue to explore this recommendation for future updates of the 
OPPS.
    In developing the payment policy proposal for separately payable 
radiopharmaceuticals for the CY 2007 proposed rule, we considered 
several additional policy options. The first option we considered 
proposing was to package additional

[[Page 49587]]

radiopharmaceuticals, either through packaging payments for all 
radiopharmaceuticals with payments for the services with which they are 
billed or increasing the packaging threshold for radiopharmaceuticals 
from a cost of $55 per day to a higher amount. In contrast to other 
separately payable drugs where the administration of many drugs is 
reported with only a few drug administration HCPCS codes, only a small 
number of specific radiopharmaceuticals may be appropriately provided 
in the performance of each particular nuclear medicine procedure. 
Because the provision of nuclear medicine procedures always requires 
one or more radiopharmaceuticals, packaging more radiopharmaceuticals 
effectively results in some increases in the costs of the associated 
nuclear medicine procedures to reflect the greater packaging of the 
radiopharmaceuticals. The specific increased procedural costs observed 
are dependent upon the volumes and costs of various 
radiopharmaceuticals used in the procedures and thus reflect an average 
cost across clinical scenarios where providers may choose among several 
radiopharmaceuticals for the procedures. A policy to package additional 
radiopharmaceuticals would be very consistent with OPPS packaging 
principles and payment policies which generally provide appropriate 
payment for the average service and would provide greater 
administrative simplicity for hospitals. Because we believe that 
radiopharmaceutical handling costs are included in hospitals charges 
for the radiopharmaceuticals themselves, payments for the nuclear 
medicine procedures would include payments for the handling costs of 
the radiopharmaceuticals used under this option.
    In examining our claims data for CY 2005, we noted that significant 
numbers of claims for nuclear medicine procedures included no HCPCS 
codes for radiopharmaceuticals. While it is possible that hospitals 
used packaged radiopharmaceuticals in some studies and therefore chose 
not to report them separately, it is also possible that some hospitals 
may have included charges for the required radiopharmaceuticals in 
their charges for the nuclear medicine procedures themselves. Packaging 
additional radiopharmaceuticals would be consistent with the charging 
practices of some hospitals that already may not be separately 
reporting radiopharmaceuticals, even when those radiopharmaceuticals 
would receive separate payment under the OPPS. Were we to package 
additional radiopharmaceuticals under the OPPS, consistent with our 
packaging policies for implantable devices, we might need to establish 
edits to ensure that radiopharmaceutical charges were always included 
on claims for nuclear medicine procedures, as has been suggested to us 
by interested organizations.
    However, under a policy of increased packaging of 
radiopharmaceuticals, payments for certain nuclear medicine procedures 
could potentially be less than the costs of some of the packaged 
radiopharmaceuticals and relatively expensive and high volume 
radiopharmaceuticals could become packaged. In addition, our payment 
policy could discourage selection of the most clinically appropriate 
radiopharmaceutical for a particular nuclear medicine procedure, 
especially if that radiopharmaceutical were expensive and not commonly 
used so that its costs were not fully reflected in the payment for the 
nuclear medicine procedure. In addition, the statutory definition of a 
``specified covered outpatient drug'' for OPPS purposes that includes 
radiopharmaceutical agents appears more consistent with the treatment 
of radiopharmaceuticals like other drugs under the OPPS, at least when 
this is feasible. We solicit public comment on the merits of 
establishing a higher packaging threshold for radiopharmaceuticals, 
given their unique characteristics.
    The second option that we considered proposing was to continue the 
temporary CY 2006 methodology of paying for separately payable 
radiopharmaceuticals at charges reduced to cost, where payment would be 
determined using each hospital's overall CCR, and establishing our 
radiopharmaceutical packaging threshold at $55, as we are proposing for 
other drugs under the CY 2007 OPPS. This policy would provide stability 
to the payment methodology for radiopharmaceuticals from CY 2006 to CY 
2007. As we indicated for CY 2007, this payment methodology provides an 
acceptable proxy for the average acquisition of the radiopharmaceutical 
along with its handling cost.
    However, as also indicated previously, we stated in the CY 2006 
OPPS final rule with comment period that this payment policy was 
intended to be only a temporary policy, and that we would consider 
alternative methodologies to base radiopharmaceutical payments on for 
the CY 2007 OPPS update. We generally do not make payments under the 
OPPS for items and services at cost, particularly if we do not expect 
the costs of services to vary substantially and unpredictably over time 
and if we have hospital claims data available. Paying for 
radiopharmaceuticals at cost provides hospitals with no incentive to 
supply radiopharmaceuticals in the most efficient manner. In its 
comments on the CY 2006 OPPS proposed rule, the GAO expressed concern 
that this methodology would be likely to result in payments that exceed 
hospitals' acquisition costs for certain radiopharmaceuticals. 
Estimates of our CY 2006 payments for radiopharmaceuticals reveal 
variation from the 25th to 75th payment percentile of 2 to 9 fold, 
depending on the specific radiopharmaceutical. We do not believe that 
the radiopharmaceutical acquisition and handling costs for different 
hospitals to provide most radiopharmaceuticals should vary that 
greatly. In addition, using hospitals' overall CCRs to determine 
payments likely results in an overstatement of radiopharmaceutical 
costs, which are likely reported in several cost centers such as 
diagnostic radiology that have lower CCRs than hospitals' overall CCRs.
    The third option that we considered and are proposing for CY 2007 
is to establish prospective payment rates for separately payable 
radiopharmaceuticals using mean costs derived from the CY 2005 claims 
data, where the costs are determined using our standard methodology of 
applying hospital-specific departmental CCRs to radiopharmaceutical 
charges, defaulting to hospital-specific overall CCRs only if 
appropriate departmental CCRs are unavailable. This proposal 
establishes our packaging threshold for radiopharmaceuticals at $55, as 
for other drugs under the CY 2007 OPPS. We believe this option provides 
us with the most consistent, accurate, and efficient methodology for 
prospectively establishing payment rates for separately payable 
radiopharmaceuticals. This is our preferred payment proposal for 
radiopharmaceuticals because this methodology is consistent with how 
payment rates for other services are determined under the OPPS and 
provides for prospective payments that serve as appropriate proxies for 
the average acquisition costs of the radiopharmaceuticals along with 
their handling costs. The MedPAC has indicated that hospitals currently 
include the charge for radiopharmaceutical handling in their charge for 
the radiopharmaceutical. In addition, this approach provides an average 
payment to hospitals, consistent

[[Page 49588]]

with the statutory requirement that we pay the average acquisition 
cost, in comparison with our CY 2006 cost-based policy which paid each 
hospital differently for each claim based on the claim's charges and 
the hospital's overall CCR.
    We believe that this methodology would likely pay more accurately 
for radiopharmaceuticals, and provide incentives for their efficient 
acquisition and preparation. Also, as discussed earlier, MedPAC 
indicated that hospitals include charges for handling costs in their 
charge for radiopharmaceuticals; therefore, mean costs based on our 
claims data would represent both the acquisition and overhead costs of 
the separately payable radiopharmaceuticals. We believe that this 
payment policy could also be an appropriate long-term 
radiopharmaceutical payment policy that would allow us to consistently 
establish prospective OPPS payment rates for the acquisition and 
overhead costs of separately payable radiopharmaceuticals. Because we 
will be paying separately for radiopharmaceuticals with mean costs per 
day greater than $55, without additional radiopharmaceutical packaging 
for CY 2007, we see no reason to establish edits for the presence of 
radiopharmaceutical codes on claims for nuclear medicine procedures as, 
in many cases, payments for the procedures do not include payments for 
the radiopharmaceuticals used.
    Under each of the payment options for radiopharmaceuticals, we 
considered that beginning with CY 2007 and going forward we would 
update the packaging threshold for inflation using an inflation 
adjustment factor based on the Producer Price Index (PPI) for 
prescription preparations. As discussed elsewhere in the preamble, the 
adjusted amount for CY 2007 was determined to be $55.
    In its October 31, 2005 letter of comment on proposed 2006 SCOD 
rates titled ``Comments on Proposed 2006 SCOD Rates'', the GAO 
recommended that to better approximate hospitals' acquisition costs of 
SCODs that the Secretary reconsider the decision to base payment rates 
for radiopharmaceutical SCODs exclusively on estimated costs in light 
of the availability of data on actual prices paid for key 
radiopharmaceuticals. As we did not have ASPs for radiopharmaceuticals 
that best represent market prices, in the CY 2006 OPPS final rule with 
comment period, we finalized a temporary 1-year policy for CY 2006 to 
pay for radiopharmaceuticals that were separately payable in CY 2006 
based on the hospital's charge for each radiopharmaceutical agent 
adjusted to cost. We noted that MedPAC has indicated that hospitals 
currently include the charge for pharmacy overhead costs in their 
charge for the radiopharmaceutical. Therefore, we believed that paying 
for these items on the basis of charges converted to cost would be the 
best available proxy for the average acquisition cost of the 
radiopharmaceutical along with its handling cost in CY 2006. We did not 
use the GAO hospital purchase prices as the basis for setting payments 
because when we examined differences between the CY 2005 payment rates 
for these nine radiopharmaceuticals and their GAO mean purchase prices, 
we found that the GAO purchase prices were substantially lower for 
several of these agents. We indicated that our intent was to maintain 
consistency, whenever possible, between the payment rates for these 
agents from CY 2005 to CY 2006. For CY 2007, however, we considered 
several payment options for radiopharmaceuticals that we discussed 
above and are proposing to establish prospective payment rates for 
separately payable radiopharmaceuticals using mean costs derived from 
the CY 2005 claims data.
    We note that the National HCPCS Panel changed the codes and the 
descriptors of many of the radiopharmaceutical products effective 
January 1, 2006, in some cases moving from prior code descriptors based 
upon units of radioactivity to new descriptors based on study doses. 
The hospital claims data we used for our analysis are based on 
radiopharmaceutical HCPCS codes that were in effect during CY 2005. 
Because there were significant changes in HCPCS code descriptors for 
several radiopharmaceuticals from CY 2005 to CY 2006, implementation of 
the proposed payment methodology for radiopharmaceuticals requires us 
to crosswalk the cost data for these radiopharmaceuticals that are in 
terms of the CY 2005 codes to the updated CY 2006 codes that we expect 
to be in effect during CY 2007. The mean cost data per unit of many CY 
2005 codes can be directly crosswalked to the new CY 2006 codes because 
the products and units included in the code descriptors are essentially 
the same. However, there are several CY 2005 codes with descriptors 
specifying units of radioactivity that were changed to per study dose 
units in CY 2006. For these radiopharmaceuticals, we are proposing to 
calculate their per day costs based on the CY 2005 codes and use those 
per day costs as proxies for the per study dose costs of the CY 2006 
codes. We believe that patients would generally receive one study dose 
of these radiopharmaceuticals each day, and our CY 2005 claims data 
show that they were most commonly billed with specific nuclear medicine 
procedures that normally include a single radiopharmaceutical dose on a 
given day. Therefore, the per day costs of these radiopharmaceuticals 
calculated based on claims reporting the CY 2005 codes should be an 
appropriate basis for determining the payment rates for the CY 2006 
HCPCS codes.
    Out of the 39 radiopharmaceutical HCPCS codes that we are proposing 
to pay separately for in CY 2007, we are able to directly crosswalk the 
CY 2005 cost data to 31 of these codes. The descriptors for the 
remaining eight codes changed from per unit of radioactivity in CY 2005 
to new descriptors based on per study doses in CY 2006. Therefore, we 
are proposing to use the per day costs based on the CY 2005 claims data 
as proxies for the per study dose costs for this subset of 
radiopharmaceutical HCPCS codes to be reported in CY 2007.
    There are three cases where two CY 2005 HCPCS codes were mapped to 
one new CY 2006 code that will be reported in CY 2007. These three CY 
2006 HCPCS codes are A9550, A9553, and A9559. Because of the 
complicated nature of crosswalking the cost data for two predecessor 
HCPCS codes with different units in their descriptors to each of these 
new HCPCS codes, we are proposing to crosswalk the cost data only from 
the predecessor HCPCS codes with the most claims volume in CY 2005 to 
each of these three HCPCS codes to be reported for CY 2007.
    Table 26 below lists all of the CY 2007 separately payable 
radiopharmaceuticals and the predecessor HCPCS codes whose claims data 
were used to set the CY 2007 proposed payment rates and notes the 
crosswalk methodology used for the proposed rates.

BILLING CODE 4120-01-P

[[Page 49589]]

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[[Page 49591]]


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[[Page 49592]]


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[[Page 49593]]


[GRAPHIC] [TIFF OMITTED] TP23AU06.026

BILLING CODE 4120-01-C
    We specifically request public comment on the radiopharmaceutical 
payment methodology that we are proposing for the CY 2007 OPPS update. 
We also seek public comment on the possibility of developing an 
alternative packaging threshold for radiopharmaceuticals to provide 
greater administrative simplicity for hospitals. Additionally, we 
request public comment on the crosswalk that we are proposing to use to 
determine the CY 2007 payment rates for separately payable 
radiopharmaceuticals.
    While payments for drugs, biologicals and radiopharmaceuticals are 
taken into account when calculating budget neutrality, we note that we 
are proposing to make payments for drugs, biologicals, and 
radiopharmaceuticals without scaling these payment amounts.

[[Page 49594]]

Section 1833(t)(14)(A)(iii)(I) requires that, beginning in CY 2006, we 
pay for a separately payable drug on the basis of ``the average 
acquisition cost of the drug.'' As we stated in the CY 2006 OPPS final 
rule with comment period (70 FR 42728), we believe that the best 
interpretation of the specific requirement that we pay for such drugs 
on the basis of average acquisition cost, is that these payments 
themselves should not be adjusted as part of meeting the statutory 
budget neutrality requirement. If we were to apply a budget neutrality 
scalar to these payments, we would no longer be paying the average 
acquisition cost, but rather an adjusted average acquisition cost, for 
separately payable drugs, biologicals, and radiopharmaceuticals. We 
believe that these amounts, without a budget neutrality scalar applied, 
are the best proxies we have for the aggregate average acquisition and 
pharmacy overhead and handling costs of drugs, biologicals, and 
radiopharmaceuticals.
b. Proposed CY 2007 Payment for Nonpass-Through Drugs, Biologicals, and 
Radiopharmaceuticals With HCPCS Codes, But Without OPPS Hospital Claims 
Data
    Pub. L. 108-173 does not address the OPPS payment in CY 2005 and 
after for new drugs, biologicals, and radiopharmaceuticals that have 
assigned HCPCS codes, but that do not have a reference AWP or approval 
for payment as pass-through drugs or biologicals. Because there is no 
statutory provision that dictated payment for such drugs and 
biologicals in CY 2005, and because we had no hospital claims data to 
use in establishing a payment rate for them, we investigated several 
payment options for CY 2005 and discussed them in detail in the CY 2005 
OPPS final rule with comment period (69 FR 65797 through 65799).
    For CYs 2005 and 2006, we finalized the policy to pay separately 
for new drugs, biologicals, and radiopharmaceuticals with HCPCS codes, 
but which did not have pass-through status at a rate that was 
equivalent to the payment they received in the physician office 
setting, which was established in accordance with the ASP methodology. 
For CY 2007, we are proposing to continue payment for these new drugs 
and biologicals with HCPCS codes as of January 1, 2007, but which do 
not have pass-through status, at a rate that is equivalent to the 
payment they would receive in the physician office setting, which would 
be established in accordance with the ASP methodology described in the 
CY 2006 Medicare Physician Fee Schedule final rule, where payment would 
generally be equal to ASP+6 percent. In accordance with the ASP 
methodology, in the absence of ASP data, we are continuing the policy 
we implemented during CYs 2005 and 2006 of using the wholesale 
acquisition cost (WAC) for the product to establish the initial payment 
rate. We note, however, that if the WAC is also unavailable, we would 
make payment at 95 percent of the product's most recent AWP. We are 
proposing to adopt this interim payment methodology in order to be 
consistent with how we pay for new drugs, biologicals, and 
radiopharmaceuticals without HCPCS codes, as discussed in the CY 2006 
OPPS final rule with comment period (70 FR 68669). We further note that 
with respect to items for which we do not have ASP data, once their ASP 
data become available in later quarter submissions, their payment rates 
under OPPS will be adjusted so that the rates are based on the ASP 
methodology and set to ASP+6 percent. In the event that the drug or 
biological is covered under the competitive acquisition program, then 
we propose to pay for it at the payment rate calculated under this 
program consistent with the provisions in section 1847B of the Act. We 
propose to base payment for new radiopharmaceuticals with HCPCS codes 
as of January 1, 2007, but which do not have pass-through status, on 
the WACs for these products as ASP data for radiopharmaceuticals are 
not available. In addition, we note that if the WACs are also 
unavailable, then we would make payment for the radiopharmaceuticals at 
95 percent of their most recent AWPs. We are proposing to adopt this 
interim payment methodology in order to be consistent with how we pay 
for new drugs, biologicals, and radiopharmaceuticals without HCPCS 
codes, as discussed in the CY 2006 OPPS final rule with comment period 
(70 FR 68669). To be consistent with the ASP-based payments that would 
be made when the new drugs and biologicals are furnished in physician 
offices, we are proposing to make any appropriate adjustments to their 
payment amounts in the CY 2007 OPPS final rule and also on a quarterly 
basis on our Web site during CY 2007 if later quarter ASP submissions 
(or more recent WACs or AWPs) indicate that adjustments to the payment 
rates for these drugs and biologicals are necessary. The payment rates 
for new radiopharmaceuticals would also be adjusted accordingly. We are 
also proposing to make appropriate adjustments to the payment rates for 
new drugs and biologicals in the event that they become covered under 
the competitive acquisition program in the future.
    As discussed in the CY 2005 OPPS final rule with comment period (69 
FR 65797), and the CY 2006 OPPS final rule with comment period (70 FR 
68666), new drugs, biologicals, and radiopharmaceuticals may be 
expensive, and we are concerned that packaging these new items might 
jeopardize beneficiary access to them. In addition, we do not want to 
delay separate payment for these items solely because a pass-through 
application was not submitted. The payment methodologies described 
above are the same as the methodologies that would be used to calculate 
the OPPS payment amount that pass-through drugs, biologicals, and 
radiopharmaceuticals would be paid in CY 2007. We refer readers to 
section V.A. of this preamble for a discussion of payment policies of 
pass-through drugs, biologicals, and radiopharmaceuticals under OPPS. 
Consequently, we are proposing to continue to treat new drugs, 
biologicals, and radiopharmaceuticals with newly established HCPCS 
codes the same, irrespective of whether pass-through status has been 
determined. We also are proposing to assign status indicator ``K'' to 
HCPCS codes for new drugs, biologicals, and radiopharmaceuticals for 
which we have not received a pass-through application. We specifically 
request comments on our proposed payment policies for new drugs, 
biologicals, and radiopharmaceuticals with HCPCS codes but which do not 
have pass-through status as of January 1, 2007. The new CY 2007 HCPCS 
codes for drugs, biologicals, and radiopharmaceuticals are not 
available at the time of the development of this proposed rule; 
however, they will be included in the CY 2007 OPPS final rule.
    There are several drugs, biologicals, and radiopharmaceuticals that 
were payable during CY 2005 or where HCPCS codes for products were 
created effective January 1, 2006, for which we do not have any CY 2005 
hospital claims data. In order to determine the packaging status of 
these items for CY 2007, we calculated an estimate of the per day cost 
of each of these items by multiplying the payment rate for each product 
based on ASP+5 percent similar to other separately payable nonpass-
through drugs and biologicals under the OPPS and, as determined using 
the ASP methodology as described in section V.B.3.a.2. of this 
preamble, by an estimated average number of units of each product that 
would typically be

[[Page 49595]]

furnished to a patient during one administration in the hospital 
outpatient setting. We are proposing to package items for which we 
estimate the per administration cost to be less than $55, which is the 
packaging threshold that we are proposing for drugs, biologicals, and 
radiopharmaceuticals in CY 2007, and pay separately for items with an 
estimated per administration cost greater than $55. We are proposing 
that the CY 2007 payment for separately payable items would be based on 
rates determined using the ASP methodology established in the physician 
office setting and set to ASP+5 percent, similar to other separately 
payable nonpass-through drugs and biologicals under the OPPS. In 
accordance with the ASP methodology used in the physician office 
setting, in the absence of ASP data, we would use the WAC for the 
product to establish the initial payment rate. We note, however, that 
if the WAC is also unavailable, then we would make payment at 95 
percent of the most recent AWP available. We note that for 
radiopharmaceutical agents that do not have any CY 2005 hospital claims 
data, we propose to determine their packaging status and, if the items 
are separately payable, then establish their payment rates using the 
WACs for the products because ASP data are not available for any 
radiopharmaceuticals. We also note that if the WACs are unavailable, 
then we would use payment at 95 percent of the most recent AWPs to 
determine their packaging status and payment rates. In order to 
determine the packaging status and payment rates for these drugs, 
biologicals, and radiopharmaceuticals in this proposed rule, we used 
ASP data from the fourth quarter of 2005 or the most recent WAC or AWP 
data available at this time, as appropriate.
    Table 27 below lists all of the items without available CY 2005 
claims data to which these policies would apply in CY 2007. There are 
three HCPCS codes for which we were not able to determine payment rates 
based on the ASP methodology. The HCPCS codes are 90393 (Vaccina ig, 
im), 90693 (Typhoid vaccine, akd, sc), and A9567 (Technitium TC-99m 
aerosol). Because we are unable to estimate the per administration cost 
of these items, we are proposing to package them in CY 2007. We are 
seeking comments on our proposed policies for determining the per 
administration cost of the drugs, biologicals, and radiopharmaceuticals 
that are payable under the OPPS, but do not have any CY 2005 claims 
data.

               Table 27.--Drugs, Biologicals, and Radiopharmaceuticals Without CY 2005 Claims Data
----------------------------------------------------------------------------------------------------------------
                                                                     Estimated average
                                                       ASP-based      number of  units
      HCPCS code               Description           payment rate           per            CY 2007 proposed SI
                                                                       administration
----------------------------------------------------------------------------------------------------------------
90714.................  Td vaccine no prsrv >/= 7            $18.09               1     N
                         im.
90727.................  Plague vaccine, im.......            150.00               1     K
A9535.................  Injection, methylene blue              2.87              10     N
J0132.................  Acetylcysteine injection.              1.86             210     K
J0200.................  Alatrofloxacin mesylate..             16.03               2.5   N
J0278.................  Amikacin sulfate                       1.33               5.25  N
                         injection.
J0288.................  Ampho b cholesteryl                   12.00              35     K
                         sulfate.
J0350.................  Injection anistreplase 30          2,265.46               1     K
                         u.
J0395.................  Arbutamine HCl injection.            160.00               1     K
J1452.................  Intraocular Fomivirsen na            210.00               1     K
J2425.................  Palifermin injection.....             11.37              84     K
J2805.................  Sincalide injection......             44.14               1     N
J2850.................  Inj secretin synthetic                20.31              14     K
                         human.
J3355.................  Urofollitropin, 75 iu....             48.84               2     K
J3471.................  Ovine, up to 999 USP                   0.11             150     N
                         units.
J3472.................  Ovine, 1000 USP units....            133.77               1     K
J7341.................  Non-human, metabolic                   1.64              50     K
                         tissue.
J8540.................  Oral dexamethasone.......              0.07              80     N
J9225.................  Histrelin implant........          2,019.82               1     K
Q9958.................  HOCM < = 149 mg/ml iodine,              0.06             100     N
                         1ml.
Q9959.................  HOCM 150-199mg/ml                      0.08             100     N
                         iodine,1ml.
Q9960.................  HOCM 200-249mg/ml                      0.09             100     N
                         iodine,1ml.
Q9961.................  HOCM 250-299mg/ml                      0.17             100     N
                         iodine,1ml.
Q9962.................  HOCM 300-349mg/ml                      0.14             100     N
                         iodine,1ml.
Q9963.................  HOCM 350-399mg/ml                      0.39             100     N
                         iodine,1ml.
Q9964.................  HOCM >= 400mg/ml iodine,               0.19             100     N
                         1ml.
----------------------------------------------------------------------------------------------------------------

VI. Proposed Estimate of OPPS Transitional Pass-Through Spending in CY 
2007 for Drugs, Biologicals, Radiopharmaceuticals, and Devices

    (If you choose to comment on issues in this section, please include 
the caption ``OPPS: Estimated Transitional Pass-Through Spending'' at 
the beginning of your comment.)

A. Total Allowed Pass-Through Spending

    Section 1833(t)(6)(E) of the Act limits the total projected amount 
of transitional pass-through payments for drugs, biologicals, 
radiopharmaceuticals, and categories of devices for a given year to an 
``applicable percentage'' of projected total Medicare and beneficiary 
payments under the hospital OPPS. For a year before CY 2004, the 
applicable percentage was 2.5 percent; for CY 2004 and subsequent 
years, we specify the applicable percentage up to 2.0 percent.
    If we estimate before the beginning of the calendar year that the 
total amount of pass-through payments in that year would exceed the 
applicable percentage, section 1833(t)(6)(E)(iii) of the Act requires a 
uniform reduction in the amount of each of the transitional pass-
through payments made in that year to ensure that the limit is not 
exceeded. We make an estimate of pass-through spending to determine not 
only whether

[[Page 49596]]

payments exceed the applicable percentage, but also to determine the 
appropriate reduction to the conversion factor for the projected level 
of pass-through spending in the following year.
    For devices, making an estimate of pass-through spending in CY 2007 
entails estimating spending for two groups of items. The first group 
consists of those items for which we have claims data for procedures 
that we believe used devices that were eligible for pass-through status 
in CY 2005 and CY 2006 and that would continue to be eligible for pass-
through payment in CY 2007. The second group consists of those items 
for which we have no direct claims data, that is, items that became, or 
would become, eligible in CY 2006 and would retain pass-through status 
in CY 2007, as well as items that would be newly eligible for pass-
through payment beginning in CY 2007.

B. Proposed Estimate of Pass-Through Spending for CY 2007

    We are proposing to set the applicable percentage cap at 2.0 
percent of the total OPPS projected payments for CY 2007. As we discuss 
in section IV.B. of this preamble, there is one device category 
receiving pass-through payment in CY 2006 that will continue for 
payment during CY 2007. Therefore, we estimate pass-through spending 
attributable to the first group of items described above to be $36.8 
million.
    To estimate CY 2007 pass-through spending for device categories in 
the second group, that is, items for which we have no direct claims 
data, we used the following approach: For additional device categories 
that are approved for pass-through status after July 1, 2006, but 
before January 1, 2007, we are proposing to use price information from 
manufacturers and volume estimates based on claims for procedures that 
would most likely use the devices in question because we do not have 
any CY 2005 claims data upon which to base a spending estimate. We are 
proposing to project these data forward to CY 2007 using inflation and 
utilization factors based on total growth in OPPS services as projected 
by CMS' Office of the Actuary (OACT) to estimate CY 2007 pass-through 
spending for this group of device categories. We may use an alternate 
growth factor for any specific new device category based on our claims 
data or the device's clinical characteristics, or both. For device 
categories that become eligible for pass-through status in CY 2007, we 
are proposing to use the same methodology. We anticipate that any new 
categories for January 1, 2007, would be announced after the 
publication of this proposed rule, but before publication of the final 
rule with comment period. Therefore, the estimate of pass-through 
spending in the CY 2007 OPPS final rule with comment period would 
incorporate any pass-through spending for device categories made 
effective January 1, 2007, and during subsequent quarters of CY 2007.
    With respect to CY 2007 pass-through spending for drugs and 
biologicals, as we explain in section V.A.3. of this proposed rule, the 
pass-through payment amount for new drugs and biologicals that we 
determine have pass-through status will equal zero. Therefore, our 
estimate of pass-through spending for drugs and biologicals with pass-
through status in CY 2007 equals zero.
    In the CY 2005 OPPS final rule with comment period (69 FR 65810), 
we indicated that we are accepting pass-through applications for new 
radiopharmaceuticals that are assigned a HCPCS code on or after January 
1, 2005. (Prior to this date, radiopharmaceuticals were not included in 
the category of drugs paid under the OPPS, and therefore, were not 
eligible for pass-through status.) We have no new radiopharmaceuticals 
that were added for pass-through payment in CY 2005 or to this point in 
CY 2006, and we currently have no information identifying new 
radiopharmaceuticals to which a HCPCS code might be assigned on or 
after January 1, 2007, for which pass-through payment status would be 
sought. We also have no data regarding payment for new 
radiopharmaceuticals with pass-through status under the methodology 
that we specified in the CY 2005 OPPS final rule with comment period. 
However, we do not believe that pass-through spending for new 
radiopharmaceuticals in CY 2007 will be significant enough to 
materially affect our estimate of total pass-through spending in CY 
2007. Therefore, we are not including radiopharmaceuticals in our 
estimate of pass-through spending for CY 2007. We discuss the 
methodology for determining the proposed CY 2007 payment amount for 
radiopharmaceuticals with pass-through status in section V.B.3.b. of 
this preamble.
    In accordance with the methodology described above, we estimate 
that total pass-through spending for both device categories that are 
continuing into CY 2007 and that first become eligible for pass-through 
status during CY 2007 would equal approximately $43.2 million, which 
represents 0.13 percent of total OPPS projected payments for CY 2007. 
This figure includes estimates for the current device category 
continuing into CY 2007, which equals $36.8 million, in addition to 
projections for categories that may become eligible after publication 
of this proposed rule but before the end of CY 2006, and for 
projections for new categories that may become eligible during CY 2007.

 Table 28.--Estimates for CY 2007 Transitional Pass-Through Spending for
         Current Pass-Through Categories Continuing Into CY 2007
------------------------------------------------------------------------
                                                              CY 2007
                          Existing pass-      CY 2007        estimated
    HCPCS         APC     through device     estimated     pass-through
                             category       utilization      payments
------------------------------------------------------------------------
C1820........  1820....  Generator,                4,568     $36,766,720
                          neurostimulato
                          r
                          (implantable),
                          with
                          rechargeable
                          battery and
                          charging
                          system.
------------------------------------------------------------------------

    Because we estimate pass-through spending in CY 2007 will not 
amount to 2.0 percent of total projected OPPS CY 2007 spending, we are 
proposing to return 1.87 percent of the pass-through pool to adjust the 
conversion factor, as we discuss in section II.C. of this preamble.

VII. Proposed Brachytherapy Source Payment Changes

    (If you choose to comment on issues in this section, please include 
the caption ``OPPS: Brachytherapy'' at the beginning of your comment.)

A. Background

    Section 1833(t)(2)(H) of the Act, as added by section 621(b)(2)(C) 
of Pub. L. 108-173, mandated the creation of separate groups of covered 
OPD services that classify brachytherapy devices separately from other 
services or groups of services. The additional groups must

[[Page 49597]]

reflect the number, isotope, and radioactive intensity of the devices 
of brachytherapy furnished, including separate groups for Palladium-103 
and Iodine-125 devices. In accordance with this provision, since CY 
2004 we have established four new brachytherapy source codes and 
descriptors.
    Section 1833(t)(16)(C) of the Act, as added by section 621(b)(1) of 
Pub. L. 108-173, established payment for devices of brachytherapy 
consisting of a seed or seeds (or radioactive source) based on a 
hospital's charges for the service, adjusted to cost. The period of 
payment under this provision is for brachytherapy sources furnished 
from January 1, 2004, through December 31, 2006. Under section 
1833(t)(16)(C) of the Act, charges for the brachytherapy devices may 
not be used in determining any outlier payments under the OPPS for that 
period of payment. Consistent with our practice under the OPPS to 
exclude items paid at cost from budget neutrality consideration, these 
items have been excluded from budget neutrality for that time period as 
well.
    In the OPPS interim final rule with comment period published on 
January 6, 2004 (69 FR 827), we implemented sections 621(b)(1) and 
(b)(2)(C) of Pub. L. 108-173. In that rule, we stated that we would pay 
for the brachytherapy sources listed in Table 4 of the interim final 
rule with comment period (69 FR 828) on a cost basis, as required by 
the statute. Since January 1, 2004, we have used status indicator ``H'' 
to denote nonpass-through brachytherapy sources paid on a cost basis, a 
policy that we finalized in the CY 2005 final rule with comment period 
(69 FR 65838).
    Furthermore, we adopted a standard policy for brachytherapy code 
descriptors, beginning January 1, 2005. We included ``per source'' in 
the HCPCS code descriptors for all those brachytherapy source 
descriptors for which units of payment were not already delineated.
    Section 621(b)(3) of Pub. L. 108-173 requires the Government 
Accountability Office (GAO) to conduct a study to determine appropriate 
payment amounts for devices of brachytherapy, and to submit a report on 
its study to the Congress and the Secretary, including recommendations. 
The GAO's final report, published at the end of July 2006, was not 
available in time to review and discuss in this proposed rule. We plan 
to discuss the report's findings and recommendations in the CY 2007 
OPPS final rule with comment period.

B. Proposed Payments for Brachytherapy Sources in CY 2007

    As indicated above, the provision to pay for brachytherapy sources 
at charges reduced to cost expires after December 31, 2006, in 
accordance with section 1833(t)(16)(C) of the Act. However, under 
section 1833(t)(2)(H) of the Act, we are still required to create APC 
groupings that classify devices of brachytherapy separately from other 
services or groups of services in a manner reflecting the number, 
isotope, and radioactive intensity of the devices of brachytherapy 
furnished.
    We are proposing to pay separately for each of the sources listed 
in Table 29 below on a prospective basis for CY 2007, with payment 
rates to be determined using the CY 2005 claims-based median cost per 
source for each brachytherapy device. Consistent with our policy 
regarding APC payments made on a prospective basis, we are proposing 
that the cost of brachytherapy sources be subject to the outlier 
provisions of section 1833(t)(5) of the Act. As indicated in section 
II.A.2. of the preamble to this proposed rule, for CY 2007, we are 
proposing a specific payment rate for brachytherapy sources, which will 
be subject to scaling for budget neutrality.
    Table 29 includes a complete listing of the HCPCS codes, long 
descriptors, APC assignments, APC titles, and status indicators that we 
currently use for brachytherapy sources paid under the OPPS in CY 2006 
and that we are proposing to use for CY 2007. The brachytherapy sources 
and related information in Table 29 are the same sources and 
information as those listed in Table 28 of the OPPS CY 2006 final rule 
with comment period (70 FR 68676). No additional brachytherapy sources 
have been added since the CY 2006 final rule with comment period.

Table 29.--Proposed Separately Payable Brachytherapy Sources for CY 2007
------------------------------------------------------------------------
                                                            New status
 HCPCS code   Long descriptor    APC       APC title        indicator
------------------------------------------------------------------------
C1716.......  Brachytherapy       1716  Brachytx         K
               source, Gold              source, Gold
               198, per                  198.
               source.
C1717.......  Brachytherapy       1717  Brachytx         K
               source, High              source, HDR Ir-
               Dose Rate                 192.
               Iridium 192,
               per source.
C1718.......  Brachytherapy       1718  Brachytx         K
               source, Iodine            source, Iodine
               125, per                  125.
               source.
C1719.......  Brachytherapy       1719  Brachytx         K
               source, Non-              source, Non-
               High Dose Rate            HDR Ir-192.
               Iridium 192,
               per source.
C1720.......  Brachytherapy       1720  Brachytx         K
               source,                   source,
               Palladium 103,            Palladium 103.
               per source.
C2616.......  Brachytherapy       2616  Brachytx         K
               source,                   source,
               Yttrium-90,               Yttrium-90.
               per source.
C2632.......  Brachytherapy       2632  Brachytx sol, I- K
               solution,                 125, per mCi.
               Iodine125, per
               mCi.
C2633.......  Brachytherapy       2633  Brachytx         K
               source, Cesium-           source, Cesium-
               131, per                  131.
               source.
C2634.......  Brachytherapy       2634  Brachytx         K
               source, High              source, HA, I-
               Activity,                 125.
               Iodine-125,
               greater than
               1.01 mCi
               (NIST), per
               source.
C2635.......  Brachytherapy       2635  Brachytx         K
               source, High              source, HA, P-
               Activity,                 103.
               Palladium-103,
               greater than
               2.2 mCi
               (NIST), per
               source.
C2636.......  Brachytherapy       2636  Brachytx linear  K
               linear source,            source, P-103.
               Palladium-103,
               per 1MM.
C2637.......  Brachytherapy       2637  Brachytx,        K
               source,                   Ytterbium-169.
               Ytterbium-169,
               per source.
------------------------------------------------------------------------

    There are a number of advantages to this proposed payment method. 
The OPPS is a prospective payment system under which payment rates are 
generally established based on median costs from historical hospital 
claims. Therefore, under this payment method, brachytherapy sources 
would be paid using the same basic median cost methodology as the 
overall OPPS. The payment of sources would thus be an integral part of 
the OPPS, rather than a separate cost-based payment methodology within 
the OPPS. In addition, consistent and predictable prospectively 
established payment rates under the OPPS for brachytherapy sources are 
appropriate because we do not believe that the hospital resource costs 
associated with specific brachytherapy sources should vary

[[Page 49598]]

greatly across hospitals or across clinical conditions under treatment, 
other than through differences in the numbers of sources utilized, 
which are already accounted for in our per source payment methodology. 
This prospective payment methodology would promote efficiency in the 
provision of sources, while continuing to provide payments that reflect 
the wide clinical variation in the use of brachytherapy sources related 
to many factors, including tumor type and stage, patient anatomy, and 
planned brachytherapy dose. In addition, under this method, we would 
continue to pay for brachytherapy sources separately using the same C-
codes and descriptors that hospitals have reported for the last several 
years.
    We note that High Dose Rate (HDR) Iridium-192 (C1717) is a reusable 
source, across treatment sessions and across patients. It is unclear 
whether hospitals are reporting the number of units provided 
accurately. Thus, while we are currently proposing that HDR Iridium be 
paid separately on the basis of the median cost per source as we are 
proposing to pay for the other brachytherapy sources, we invite 
comments on alternatives to using this methodology for this source, 
such as on the basis of median costs per treatment day on hospital 
claims.
    During the March 1-2, 2006 APC Panel meeting, we discussed median 
cost data for brachytherapy sources developed from the partial CY 2005 
hospitals claims data available for analysis at the time of the 
meeting. While the APC Panel made no specific recommendations about a 
specific OPPS CY 2007 payment methodology for brachytherapy sources, 
the Panel reviewed the median costs for the sources of brachytherapy 
and generally commented that the median costs appeared reasonable for 
the commonly furnished brachytherapy sources.
    Because brachytherapy sources would no longer be paid on the basis 
of their charges reduced to costs, we are proposing to discontinue our 
use of payment status indicator ``H'' for APCs assigned to 
brachytherapy sources. We are proposing to use status indicator ``K'' 
for all brachytherapy source APCs for CY 2007. We are also proposing 
for CY 2007 to change the definition of status indicator ``K'' to 
ensure that ``K'' appropriately describes brachytherapy source APCs. 
Payment status indicators are discussed in section XV.A. of this 
preamble.
    There is one source for which we have no claims data or payment 
information. We added Ytterbium-169 (HCPCS code C2637) for payment 
effective October 1, 2005, because it met the requirements of section 
1833(t)(2)(H) of the Act as a separate brachytherapy source. It is our 
understanding that this source, which is for use in high dose rate 
(HDR) brachytherapy, is not yet marketed by the manufacturer, although 
it has been approved by the Food and Drug Administration (FDA). 
Therefore, we have no claims data for this brachytherapy source in 
order to develop a prospective payment rate, as we do for the other 
brachytherapy sources for CY 2007. In addition, it is our understanding 
that no price for the product exists, as it has not yet been marketed. 
Thus, we also have no external information regarding the cost of this 
source to hospitals. We are weighing our payment options for CY 2007 
for brachytherapy sources for which we have no payment or claims 
information, such as the present case with Ytterbium-169. This includes 
considering our CY 2007 payment options for other new brachytherapy 
sources that come to our attention, which historically have been newly 
recognized under the OPPS on a quarterly basis.
    One option for CY 2007 would be to pay for the currently existing 
HCPCS code C2637 at charges converted to costs. However, this would be 
inconsistent with our proposed policy with regard to payment for 
brachytherapy sources under prospectively established payment rates. We 
paid for all brachytherapy sources based upon charges converted to 
costs for CYs 2004 through 2006 because the law required us to do so. 
However, that provision will expire for the CY 2007 OPPS. In addition, 
this methodology would be inconsistent with the prospective payment 
methodologies we use to provide payments for other new items and 
services under the OPPS for which we do not yet have claims data.
    A second option would be to assign the code to its own APC or to a 
New Technology APC with a payment rate set at or near the lowest 
proposed payment rate for any source of brachytherapy paid on a per 
source basis (as opposed, for example, per mCi), for CY 2007. However, 
we have no claims data or other information regarding the cost of HCPCS 
code C2637 to hospitals. This payment policy would resemble our policy 
regarding the APC assignment of not otherwise classified codes, which 
are assigned to the lowest level APC in their clinically compatible 
series. However, HCPCS code C2637 is a specifically defined 
brachytherapy source, and such a payment rate would not recognize the 
clinical distinctions among brachytherapy sources, including their 
differences in isotopes, activity levels, and clinical uses in low dose 
rate (LDR) versus HDR brachytherapy. The solid brachytherapy source 
with the lowest proposed median cost for CY 2007 is HCPCS code C2634, 
for High Activity Iodine-125, with a median cost of $25.77 per source, 
which is implanted in LDR brachytherapy.
    A third option would be to assign HCPS code C2637 to its own APC or 
to a New Technology APC with a payment rate established at or near the 
proposed payment rate for HCPCS code C1717, which describes HDR 
Iridium-192. Like HCPCS code C2637, HCPCS code C1717 is used for HDR 
brachytherapy, and HCPCS code C1717 is the most commonly used source 
for HDR brachytherapy under the OPPS. However, this approach would not 
take into consideration significant differences in the two sources, 
including their radioactive isotopes and energy levels.
    The fourth option would be to assign HCPCS code C2637 to its own 
APC or to a New Technology APC with a prospective payment rate based on 
external data provided to us regarding the expected cost of the source 
to hospitals. If we were provided reliable and relevant cost 
information for the source, we could establish its payment rate based 
on that information and our review of other pertinent considerations, 
as we do for new technology services under the OPPS. Under this option, 
in the absence of external cost information, we would not recognize 
HCPCS code C2637 under the OPPS for CY 2007 until we received such 
information and could establish a payment rate in a quarterly OPPS 
update. CMS provided the brachytherapy source Ytterbium-169 a HCPCS 
code in CY 2005 at the manufacturer's request, based on the belief that 
the source would be marketed shortly. However, the product has not yet 
been marketed. Therefore, we currently have a recognized HCPCS code for 
an item that is not currently available to hospitals. We do not 
typically issue and maintain as payable a HCPCS code for an item that 
is not marketed. Under this option, if the source were marketed mid-
quarter in CY 2007 and cost information was provided to us, there would 
be no payment available for the source until the next OPPS quarterly 
update, which would establish the payment rate for HCPCS code C2637 and 
its effective date.
    After weighing the above options, we are proposing the second 
option discussed, that is, to assign C2637 to its own APC or a New 
Technology APC with a payment rate set at or near the lowest proposed 
payment rate for any

[[Page 49599]]

source of brachytherapy paid on a per source basis. This option 
resembles our policy regarding the APC assignment of not otherwise 
classified codes, in the absence of any data currently available. Once 
we have claims data, or obtain external data, we can consider movement 
to another APC, if warranted. However, as we indicate below, we are 
interested in the public's comments on the four options we have 
presented.
    We are specifically inviting comments on how we should establish 
the CY 2007 payment amount for Ytterbium-169 (HCPCS code C2637), 
especially with consideration of the four options discussed above, and 
on how we should generally proceed on setting payment amounts for 
established or new brachytherapy sources eligible for separate payment 
under section 1833(t)(2)(H) of the Act, for which we have no claims-
based cost data in the future. Note that under option 4, for a future 
new source we would need cost information regarding the source in order 
to establish a code for which we could set an appropriate OPPS payment 
rate. We intend to avoid routinely establishing HCPCS codes for 
brachytherapy sources which hospitals could not be using, and, 
therefore, for which payments would not be necessary.
    As we have consistently done in the past, we are inviting the 
public to submit recommendations for new codes to describe new 
brachytherapy sources in a manner reflecting the number, isotope, and 
radioactive intensity of the sources. We are requesting that commenters 
provide a detailed rationale to support recommended new sources and 
send recommendations to us. We will continue our endeavor to add new 
brachytherapy source codes and descriptors to our systems for payment 
on a quarterly basis. Such recommendations should be directed to the 
Division of Outpatient Care, Mail Stop C4-05-17, Centers for Medicare & 
Medicaid Services, 7500 Security Boulevard, Baltimore, MD 21244.
    We have considered the definition of the term ``brachytherapy 
source'' in the context of current medical practice, and in light of 
the language in section 1833(t)(2)(H) of the Act. We are proposing to 
define a device of brachytherapy eligible for separate payment under 
the OPPS as a ``seed or seeds (or radioactive source)'' as indicated in 
section 1833(t)(2)(H) of the Act, which refers to sources that are 
themselves radioactive, meaning that the sources contain a radioactive 
isotope. Therefore, for example, we do not consider specific devices 
that do not utilize radioactive isotopes to deliver radiation to be 
radioactive sources as envisioned by the statute. While the public may 
recommend any item that it wishes us to consider as a brachytherapy 
source, we remind the public of our interpretation of a device of 
brachytherapy eligible for separate payment under section 1833(t)(2)(H) 
of the Act.

VIII. Proposed Changes to OPPS Drug Administration Coding and Payment 
for CY 2007

    (If you choose to comment on issues in this section, please include 
the caption ``OPPS: Drug Administration'' at the beginning of your 
comment.)

A. Background

    From the start of the OPPS until the end of CY 2004, three HCPCS 
codes were used to bill drug administration services provided in the 
hospital outpatient department:
     Q0081 (Infusion therapy, using other than chemotherapeutic 
drugs, per visit)
     Q0083 (Chemotherapy administration by other than infusion 
technique only, per visit)
     Q0084 (Chemotherapy administration by infusion technique 
only, per visit).
    A fourth OPPS drug administration HCPCS code, Q0085 (Administration 
of chemotherapy by both infusion and another route, per visit), was 
active from the beginning of the OPPS through the end of CY 2003.
    Each of these four HCPCS codes mapped to an APC (that is, Q0081 
mapped to APC 0120, Q0083 mapped to APC 0116, Q0084 mapped to APC 0117, 
and Q0085 mapped to APC 0118), and the APC payment rates for these 
codes were made on a per-visit basis. The per-visit payment included 
payment for all hospital resources (except separately payable drugs) 
associated with the drug administration procedures. For CY 2004, we 
discontinued using HCPCS code Q0085 to identify drug administration 
services and moved to a combination of HCPCS codes Q0083 and Q0084 that 
allowed more accurate calculations when determining OPPS payment rates.
    In CY 2005, in response to the recommendations made by commenters 
and the hospital industry, OPPS transitioned to the use of CPT codes 
for drug administration services. These CPT codes allowed for more 
specific reporting of services, especially regarding the number of 
hours for an infusion, and provided consistency in coding between 
Medicare and other payers. However, we did not have any data to revise 
the CY 2005 per-visit APC payment structure for infusion services. In 
order to collect data for future ratesetting purposes, we implemented 
claims processing logic that collapsed payments for drug administration 
services and paid a single APC amount for those services for each 
visit, unless a modifier was used to identify drug administration 
services provided in a separate encounter on the same day. Hospitals 
were instructed to bill all applicable CPT codes for drug 
administration services provided in a hospital outpatient department, 
without regard to whether or not the CPT code would receive a separate 
APC payment during OPPS claims processing.
    While hospitals were just adopting CPT codes for outpatient drug 
administration services in CY 2005, physicians paid under the Medicare 
Physician Fee Schedule were using HCPCS G-codes in CY 2005 to report 
office-based drug administration services. These G-codes were developed 
in anticipation of substantial revisions to the drug administration CPT 
codes by the CPT Editorial Panel that were expected for CY 2006.
    In CY 2006, as anticipated, the CPT Editorial Panel revised its 
coding structure for drug administration services, incorporating new 
concepts such as initial, sequential, and concurrent services into a 
structure that previously distinguished services based on type of 
administration (chemotherapy/nonchemotherapy), method of administration 
(injection/infusion/push), and for infusion services, first hour and 
additional hours. For CY 2006, we proposed a crosswalk that mapped the 
expected CY 2006 CPT codes (represented by CY 2005 G-codes used in the 
physician office setting, the closest proxy at the time) to the APC 
payment structure implemented in CY 2005. Our crosswalk was reviewed by 
the APC Panel at both the February and August 2005 meetings, and was 
included in the CY 2006 OPPS proposed rule. During the proposed rule 
comment period, we received a number of comments that prompted several 
revisions to our proposed crosswalk, including the development of 
complex claims processing logic to assign correct payment for certain 
drug administration services that would vary based on other drug 
administration services provided during the same patient visit. These 
revisions were a result of the growing understanding, facilitated by 
the preview of CPT drug administration coding guidelines developed by 
the CPT Editorial Panel, in the hospital community of the multiple 
implications associated with adopting the newly

[[Page 49600]]

introduced CPT concepts of initial, sequential, and concurrent 
services.
    Upon review of the completed revisions to our proposed CY 2006 
methodology, and following comprehensive assessment of all public 
comments, we implemented 20 of the 33 CY 2006 drug administration CPT 
codes that did not reflect the concepts of initial, sequential, and 
concurrent services, and we created 6 new HCPCS C-codes that generally 
paralleled the CY 2005 CPT codes for the same services. We chose not to 
implement the full set of CY 2006 CPT codes because of our concerns 
regarding the interface between the complex claims processing logic 
required for correct payments and hospitals' challenges in correctly 
coding their claims to receive accurate payments for these services. In 
addition, numerous commenters indicated that implementing certain CPT 
codes in a fashion consistent with the code descriptors would present 
hospitals with difficult operational and administrative challenges 
because concepts integral to the codes were inconsistent with the 
clinical patterns of drug administration services provided in hospital 
outpatient departments. In addition to coding changes, CY 2006 payment 
rates for drug administration services were updated based upon CY 2004 
claims, and we continued the claims processing logic that required 
hospitals providing drug administration services to report all 
applicable drug administration HCPCS codes, despite some codes being 
collapsed into one APC for payment purposes.

B. Proposed CY 2007 Drug Administration Coding Changes

    For the CY 2007 OPPS, we are proposing to continue the CY 2006 OPPS 
drug administration coding structure, which combines CPT codes with 
several C-codes. However, we welcome comments from hospitals regarding 
their experiences in implementing, for purposes of reporting to other 
payers, the CY 2006 CPT codes that incorporate the concepts of initial, 
sequential, and concurrent drug administration services. While we are 
not proposing to transition to the full set of CPT codes in CY 2007, we 
retain this as an option for the future.
    In addition, because of the discrepancies between APC payments 
(based on per-visit hospital claims data) and per-service CPT/HCPCS 
coding, we provided special instructions to hospitals in CY 2005 and CY 
2006 regarding modifier 59 in order to ensure proper OPPS payments, 
consistent with our claims processing logic. As we do not expect any 
changes to our coding structure for CY 2007 and because we have updated 
service-specific claims data from CY 2005, we no longer have the need 
for specific drug administration instructions regarding modifier 59. 
Instead, for CY 2007 we are proposing that hospitals apply modifier 59 
to drug administration services using the same correct coding 
principles that they generally use for other OPPS services.

C. Proposed CY 2007 Drug Administration Payment Changes

    CY 2007 is the first year that we have more detailed claims data to 
inform our ratesetting process. Through CY 2006, payment for additional 
hours of drug infusion has always been packaged, although separate 
codes for reporting these hours have been used under the OPPS since CY 
2005. Specifically, hospitals began reporting more precise CPT codes in 
CY 2005 that included separate coding for the first hour of infusion 
versus additional hours of infusion. In order to analyze these data, 
because we expected that additional hours of i